- The Dow Jones Industrial Average (DJIA) rebounded after yesterday’s brutal 1,000 point plunge.
- But a Harvard professor says the coronavirus likely can’t be contained – and could infect more than half the world’s population.
- The impact on global GDP could be more than $1 trillion.
After its worst selloff in two years, the U.S. stock market began the long road to recovery on Tuesday. The Dow Jones Industrial Average (DJIA) rallied more than 100 points when the market opened, but that doesn’t mean the bulls are back in the driver’s seat.
Investors remain in risk-off mode as coronavirus panic spreads. In a particularly terrifying prediction, Harvard epidemiology professor Marc Lipsitch said the outbreak could infect 40-70% of the global population in the next year.
I think the likely outcome is that it will ultimately not be containable.
If his analysis is correct, yesterday’s stock market plunge is just the beginning. Wall Street research firms are now warning of a recession as severe as 2008.
Dow recovery teeters on the knife edge
After yesterday’s 1,000 point plunge, the Dow Jones made a half-hearted recovery at the opening bell.
After jumping as much as 150 points, the Dow quickly began paring those gains. As of 9:43 am ET, the DJIA had climbed 76.24 points or 0.27% to 28,037.04.
The S&P 500 and Nasdaq assembled similar recoveries, rising 0.18% and 0.4%, respectively.
Coronavirus may not be contained
The World Health Organization yesterday admitted that the global spread of COVID-19 might no longer be containable. With large clusters of cases in Italy, South Korea, Japan, and the Middle East, this is now a global outbreak.
Harvard professor Lipsitch said it would only take a cluster of 100-200 infections in the U.S. to trigger a wider spread. Although his dire estimate of 40-70% of global infection won’t all be severe:
It’s likely that many will have mild disease, or may be asymptomatic.
Even a conservative reading of his figures would spell disaster for the global economy.
Stock markets poised for 20% reversal?
In a note to clients, BCA Research warned of a severe recession ahead, if a global pandemic emerges.
The global economy faces a binomial outcome. Either coronavirus becomes a true global pandemic and the world enters a severe recession, or the panic calms down, and China’s stimulus becomes the dominant force that propels global growth significantly higher.
BCA went on to say they believe COVID-19 already classifies as a global pandemic, even if the WHO won’t acknowledge as such.
Such a pandemic would rattle the global economy, leading to a recession as deep as the one in 2008/09.
Early estimates put the global economic impact at $1 trillion, but the domino effect could be much larger.
Italy and Japan are now fighting recession as the coronavirus takes hold. And Iran looks like it will be next.
Trump’s attempt to save the Dow Jones
Yesterday’s brutal 1,000 point fall even saw the U.S. president step in to halt the bleeding. Taking to Twitter, he said the coronavirus was “under control” in the U.S. and the stock market was looking “very good.”
The good news for Dow Jones bulls is that when the president tells you to buy stocks, he’s usually right.
But despite Trump’s upbeat tone, analysts on Wall Street are now bracing for a 20-25% plunge in the stock market.
This article was edited by Samburaj Das.
Last modified: February 25, 2020 2:45 PM UTC