On Monday, stocks plunged as coronavirus fears and an oil price war combined into a perfect storm that sapped investor sentiment and sparked a flight from equities, with the Dow experiencing its biggest single-day points drop in history.
President Donald Trump said on Monday that the White House would ask Congress to approve an assistance package for workers and businesses to deal with the economic fallout from the coronavirus crisis, including “a possible payroll tax cut.”
“We’re also going to be talking about hourly wage earners getting help,” so they don’t worry about missing a paycheck, Trump added.
All three major Wall Street averages took off after markets opened Monday, with the Dow Jones, Nasdaq, and S&P 500 all up over 3 percent at 10:07 ET on March 10.
The so-called “fear gauge,” or the VIX volatility index, was down by over 8 percent from the previous day’s highs, which spiked higher on Monday than during the 2008 financial crisis. High volatility levels are reflective of wild market swings and outsized investor fear.
Moves in bonds also projected rising investor confidence, with the U.S. 10-year and 30-year Treasury yields climbing by over 10 percent Monday. The uptick in yields, which move in the opposite direction to prices, was a sign that risk-on sentiment was returning to markets that yesterday rushed to safety, pressing the benchmark 10-year note yield to a record low.
Oil prices also rebounded Monday, with West Texas Intermediate and Brent Crude futures up around 10 percent at 10:50 ET. At the same time, the OVX oil price volatility index was down over 10 percent, suggesting some stabilization.
Crude oil prices suffered their biggest single-day drop in 30 years on Monday after Saudi Arabia fired the first salvo in a price war over the weekend.
State oil giant Saudi Aramco said in a statement March 7 that it was cutting its official selling price for April for all its crude grades to all destinations, amounting to unprecedented discounts of nearly 20 percent in key markets.
The price offensive came after talks between Russia and the Organization of the Petroleum Exporting Countries (OPEC) failed to agree on production cuts last week amid a coronavirus-driven collapse in oil demand.
“Look, you’ve got one of the most powerful commodities in the hands of two of the largest superpowers in the world, and they are not agreeing on it,” said Peter Tuchman, NYSE trader, in comments to Reuters. “And you throw that on top of a market that’s full of anxiety about the potential economic global slowdown due to the virus, which I don’t even think we’ve seen yet, and you end up with a perfect storm. That’s what we have in there today.”
The steep decline in oil prices shook trader confidence around the world, triggering the first automatic trading halt in more than 20 years.
U.S. stocks neared the 20 percent drop, approaching so-called bear market territory and sparking fears of a recession.
At Monday’s White House press conference announcing the stimulus measures, Treasury Secretary Steve Mnuchin was asked whether he believes the United States is heading toward a recession.
Mnuchin said he was confident the economy is resilient enough to deal with the outbreak.
“There are parts of the economy that are going to be impacted, especially workers that need to be at home, hard-working people who are at home under quarantine or taking care of their family. We’ll be working on a program to address that,” he said. “We will also be working with small businesses who need liquidity through SBA programs.”
“This is not like the financial crisis, where we don’t know the end in sight. This is about providing proper tools and liquidity to get through the next few months,” said Mnuchin.
Emel Akan contributed to this report.