Everything was on track: unemployment at its lowest level in half a century, Federal Reserve (Fed, central bank) interest rates cut three times and a trade armistice signed with China. Donald Trump could approach the presidential year with a healthy economy. Until the coronavirus epidemic occurs. The president held an improvised press conference at the White House on Wednesday, February 26, to reassure the Americans about their health, the investors for their portfolio.
But Wall Street does not share this optimism. The Dow Jones Index ended Thursday with a sharp 4.42% drop. In total, since the records reached in February, the stock market indices (Dow Jones, Nasdaq, S&P 500) have fallen by more than 13%, which allows commentators to talk about " correction ".
The stock market thaw comes as little surprise as the coronavirus has crippled the Chinese economy and threatens to do the same in countries hit by the pandemic. Luis Oganes, a financial analyst responsible for emerging markets at JP Morgan, predicted this in a conference at the Foreign Press Center in New York on February 19. The challenge is to know the extent and duration of the phenomenon, while the sectors are experiencing contrasting destinies.
A fifth of American firms in China could lose up to half their turnover there if the epidemic continues for another six months, according to an investigation by the American chamber of commerce in the country. High-tech companies, such as Apple and Microsoft, have indicated that production chains could be affected. Tour operators, tourism companies and airlines are feeling the brunt of the crisis, while home delivery pizza companies are soaring on the stock market.
Trump: "good luck you wouldn't die"
It remains to be seen what will happen in the event of an epidemic on American soil. The comparison with previous crises is tricky: the fiscal or monetary stimulus is not immediately effective, as in a traditional recession, even if the Fed is once again under pressure to cut its rates. These actions are useless if the workers can no longer run the factories, if the population is confined to their homes with schools and shops closed.
The closest comparison, evoked by the Wall Street Journal, is the one with the attacks of September 11, 2001, which saw the aerial activity stopped, Wall Street physically destroyed, and the public rallies canceled, while the country was in recession. The Fed had injected massive liquidity while the economy finally rebounded.
