Stocks tumbled Monday due to coronavirus fears, CNN reported. Last week Apple warned of a lower than expected earnings forecast due to uncertainties caused by the coronavirus lockdown in China. However, investors remained optimistic that the outcome would be a minor setback only and tech stocks surged, sending the S&P 500’s price-to-earnings ratio to new heights.
Upon news of significant outbreaks in Italy and South Korea, investors abandoned their complacency and the Dow Jones Industrial Average dropped almost 1,000 points. Over just the last three trading days the index lost over 1,300 points. This erases all of the gains made this year.
Investors caught by surprise
Investors’ shock over the coronavirus threat may be causing them to overreact now that the global reach of the virus and its effect on the economy is becoming clear. Alec Young, the FTSE Russell director of global markets noted that investors dismissed the early warnings about the impact coronavirus could have on the financial industry. This may be leading them to overreact now.
The overlap of health crisis and economic crisis may lead to further misunderstandings. Investors aren’t health experts, Kristina Hooper, chief global strategist at Invesco pointed out. “Even the health experts can’t tell us much about the disease,” she went on to say.
Tourism industry takes hit on coronavirus fears
There was also a drop in the largest tourism stocks, reflecting the impact the disease and its corresponding quarantines has had on the travel industry. Royal Carribbean (RCL) and Carnival Cruise Lines (CCL) each lost 5% value. Delta Airlines (DAL) and American (AAL) had worse showings.
Hooper noted that the health crisis could have a greater impact than the tariff wars. The US-China trade war primarily affected the manufacturing sector, while coronavirus fears are taking a heavy toll on the service sector, a much larger market. As the virus has spread, with outbreaks cropping up in countries outside China, the forecast for hotels, airlines, restaurants and other service sectors has become bleak.
Global impact of coronavirus outbreak beginning to be felt
Fallout is not limited to the US only. Italy’s stock market index, the FTSE MIB, plummeted Monday upon news of the seventh recorded coronavirus death in Italy. Upon news of further outbreaks, South Korea’s Kospi benchmark lost 4%, its worst showing since October 2018. These developments dashed any hope that the damage from the coronavirus outbreak would be limited to China alone.
Dil Bole Oberoi
