Stocks Fall on Coronavirus, Oil-Price Fears

U.S. stocks fell on Wednesday, with the Dow Jones Industrial Average closing in bear market territory, down 20.3% from its recent peak in February. The S&P® 500 Index was down 19% from its February peak.

The number of COVID-19 cases has continued to rise, prompting the World Health Organization (WHO) to label it a “pandemic.” Meanwhile, Saudi Arabia—which on Monday cut its official crude selling price—on Wednesday unveiled plans to boost its oil-production capacity. The price for Brent crude oil, the global benchmark, has fallen from about $59 a barrel on February 20th to about $36 a barrel on Wednesday.

“The number of COVID-19 infections and deaths has continued to rise, prompting increasingly drastic containment measures,” says Schwab Chief Investment Strategist Liz Ann Sonders. “Signs that companies in the hardest-hit industries, including energy- and travel-related companies, were drawing down credit lines to battle the effects of the virus on their operations added to the anxiety.”

Recession risk is rising

The fall in oil prices will have mixed effects, according to Schwab Chief Global Investment Strategist Jeffrey Kleintop.

“Importers such as China, Japan and India will be beneficiaries, but countries such as Canada and Mexico will be hurt,” Jeffrey says. “Earnings estimates for energy companies and the global averages—as well as jobs—will likely need to be cut, despite the benefit at the pump to consumers.”

Altogether, recession risk is on the rise, Jeffrey says. “It’s possible we are entering a global recession, but it’s too early to tell the magnitude,” he says.

Much will depend on the severity of new-case growth around the world, Jeffrey says. “In past epidemics, stocks didn’t bottom until global new-case growth stabilized,” he says. “While new cases outside China continue to rise, Chinese stocks have outperformed as domestic new-case coronavirus growth seems to have peaked.”