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Wall Street Is (Finally) Waking Up to the Damage Coronavirus Could Do Wall Street Is (Finally) Waking Up to the Damage Coronavirus Could Do
(about 20 hours later)
For weeks, there has been a strange divergence among those trying to predict what coronavirus might mean for financial markets and the world economy.For weeks, there has been a strange divergence among those trying to predict what coronavirus might mean for financial markets and the world economy.
People in the trenches of global commerce — supply chain managers, travel industry experts, employers large and small — warned of substantial disruptions to their businesses. And public health authorities feared that the disease could spread far beyond Wuhan in China.People in the trenches of global commerce — supply chain managers, travel industry experts, employers large and small — warned of substantial disruptions to their businesses. And public health authorities feared that the disease could spread far beyond Wuhan in China.
Yet financial markets and most economic forecasters projected the virus outbreak wouldn’t do much harm to the economy and corporate profits — at the least, nothing that an interest-rate cut or two from the Federal Reserve couldn’t fix. The S&P 500 hit a new high last Wednesday.Yet financial markets and most economic forecasters projected the virus outbreak wouldn’t do much harm to the economy and corporate profits — at the least, nothing that an interest-rate cut or two from the Federal Reserve couldn’t fix. The S&P 500 hit a new high last Wednesday.
Something had to give, and this week it has. After reports of people infected with the virus in the major economies of South Korea and Italy, the more pessimistic view began to prevail across major world markets Monday and Tuesday.Something had to give, and this week it has. After reports of people infected with the virus in the major economies of South Korea and Italy, the more pessimistic view began to prevail across major world markets Monday and Tuesday.
Since that high last Wednesday, the S&P is down more than 7 percent. And on Tuesday, yields on 10-year United States Treasury bonds fell to their lowest levels on record, suggesting investors expect significant economic damage and accompanying Federal Reserve interest-rate cuts.Since that high last Wednesday, the S&P is down more than 7 percent. And on Tuesday, yields on 10-year United States Treasury bonds fell to their lowest levels on record, suggesting investors expect significant economic damage and accompanying Federal Reserve interest-rate cuts.
There remains huge uncertainty about how widely the virus will spread and how much damage it will do. But the financial world is realizing just how much is at stake — and how different this is from other recent hiccups in the global economy, notably last year’s trade war between the United States and China.There remains huge uncertainty about how widely the virus will spread and how much damage it will do. But the financial world is realizing just how much is at stake — and how different this is from other recent hiccups in the global economy, notably last year’s trade war between the United States and China.
“It’s one thing if Wuhan is on lockdown, another if all of China is on lockdown, another if all of Asia is on lockdown, and another if the whole world is on lockdown,” said Patrick Chovanec, an adviser for Silvercrest Asset Management and an expert on the Chinese economy. “That’s why sentiment has shifted — because it’s very different to have one country on lockdown for a couple of weeks versus rolling lockdowns throughout the global economy.”“It’s one thing if Wuhan is on lockdown, another if all of China is on lockdown, another if all of Asia is on lockdown, and another if the whole world is on lockdown,” said Patrick Chovanec, an adviser for Silvercrest Asset Management and an expert on the Chinese economy. “That’s why sentiment has shifted — because it’s very different to have one country on lockdown for a couple of weeks versus rolling lockdowns throughout the global economy.”
Since the end of the global financial crisis more than a decade ago, investors who have been the most alarmist about various risks have had a tendency to lose money. Global asset prices have been on a steady march upward despite the eurozone crisis, the end of the Federal Reserve’s quantitative easing, the trade war and every other problem that has occupied financial headlines.Since the end of the global financial crisis more than a decade ago, investors who have been the most alarmist about various risks have had a tendency to lose money. Global asset prices have been on a steady march upward despite the eurozone crisis, the end of the Federal Reserve’s quantitative easing, the trade war and every other problem that has occupied financial headlines.
So it is understandable if investors were quick to assume that coronavirus would follow a similar pattern — a temporary blip that reduced China’s growth for a quarter or two but had little lasting impact.So it is understandable if investors were quick to assume that coronavirus would follow a similar pattern — a temporary blip that reduced China’s growth for a quarter or two but had little lasting impact.
“The portfolio managers thought this would be temporary,” said Megan Greene, a senior fellow at Harvard Kennedy School. “They figured this is a flash-in-the-pan virus, that it will finish as soon as the winter does, and that even if that assumption isn’t right, that central bankers will step in and fix this mess.”“The portfolio managers thought this would be temporary,” said Megan Greene, a senior fellow at Harvard Kennedy School. “They figured this is a flash-in-the-pan virus, that it will finish as soon as the winter does, and that even if that assumption isn’t right, that central bankers will step in and fix this mess.”
Markets accustomed to optimism may be all the more vulnerable if the virus becomes a global pandemic that causes meaningful pullback of commerce across major economies. Even after the sell-off this week, financial markets remain richly valued by historical standards.Markets accustomed to optimism may be all the more vulnerable if the virus becomes a global pandemic that causes meaningful pullback of commerce across major economies. Even after the sell-off this week, financial markets remain richly valued by historical standards.
The trade war, in which the United States and China placed tariffs on specific imported goods, caused a significant slump in manufacturing last year. But the coronavirus is hurting service industries as well. If the authorities in major world economies start shutting down any facility where large numbers of people congregate — a list that includes factories, shopping malls and airports — the damage could prove broad and lasting.The trade war, in which the United States and China placed tariffs on specific imported goods, caused a significant slump in manufacturing last year. But the coronavirus is hurting service industries as well. If the authorities in major world economies start shutting down any facility where large numbers of people congregate — a list that includes factories, shopping malls and airports — the damage could prove broad and lasting.
When a hotel or airplane sits empty for weeks because people are afraid to travel, that is a loss that cannot be recovered once business returns.When a hotel or airplane sits empty for weeks because people are afraid to travel, that is a loss that cannot be recovered once business returns.
That’s particularly relevant for the United States, where service industries account for the majority of economic activity. This means that even companies that made it through the trade wars unscathed might be exposed to lost revenue or business shutdowns because of the virus outbreak.That’s particularly relevant for the United States, where service industries account for the majority of economic activity. This means that even companies that made it through the trade wars unscathed might be exposed to lost revenue or business shutdowns because of the virus outbreak.
Updated June 5, 2020Updated June 5, 2020
So far, the evidence seems to show it does. A widely cited paper published in April suggests that people are most infectious about two days before the onset of coronavirus symptoms and estimated that 44 percent of new infections were a result of transmission from people who were not yet showing symptoms. Recently, a top expert at the World Health Organization stated that transmission of the coronavirus by people who did not have symptoms was “very rare,” but she later walked back that statement.
A study by European scientists is the first to document a strong statistical link between genetic variations and Covid-19, the illness caused by the coronavirus. Having Type A blood was linked to a 50 percent increase in the likelihood that a patient would need to get oxygen or to go on a ventilator, according to the new study.A study by European scientists is the first to document a strong statistical link between genetic variations and Covid-19, the illness caused by the coronavirus. Having Type A blood was linked to a 50 percent increase in the likelihood that a patient would need to get oxygen or to go on a ventilator, according to the new study.
The unemployment rate fell to 13.3 percent in May, the Labor Department said on June 5, an unexpected improvement in the nation’s job market as hiring rebounded faster than economists expected. Economists had forecast the unemployment rate to increase to as much as 20 percent, after it hit 14.7 percent in April, which was the highest since the government began keeping official statistics after World War II. But the unemployment rate dipped instead, with employers adding 2.5 million jobs, after more than 20 million jobs were lost in April.The unemployment rate fell to 13.3 percent in May, the Labor Department said on June 5, an unexpected improvement in the nation’s job market as hiring rebounded faster than economists expected. Economists had forecast the unemployment rate to increase to as much as 20 percent, after it hit 14.7 percent in April, which was the highest since the government began keeping official statistics after World War II. But the unemployment rate dipped instead, with employers adding 2.5 million jobs, after more than 20 million jobs were lost in April.
Mass protests against police brutality that have brought thousands of people onto the streets in cities across America are raising the specter of new coronavirus outbreaks, prompting political leaders, physicians and public health experts to warn that the crowds could cause a surge in cases. While many political leaders affirmed the right of protesters to express themselves, they urged the demonstrators to wear face masks and maintain social distancing, both to protect themselves and to prevent further community spread of the virus. Some infectious disease experts were reassured by the fact that the protests were held outdoors, saying the open air settings could mitigate the risk of transmission.Mass protests against police brutality that have brought thousands of people onto the streets in cities across America are raising the specter of new coronavirus outbreaks, prompting political leaders, physicians and public health experts to warn that the crowds could cause a surge in cases. While many political leaders affirmed the right of protesters to express themselves, they urged the demonstrators to wear face masks and maintain social distancing, both to protect themselves and to prevent further community spread of the virus. Some infectious disease experts were reassured by the fact that the protests were held outdoors, saying the open air settings could mitigate the risk of transmission.
Exercise researchers and physicians have some blunt advice for those of us aiming to return to regular exercise now: Start slowly and then rev up your workouts, also slowly. American adults tended to be about 12 percent less active after the stay-at-home mandates began in March than they were in January. But there are steps you can take to ease your way back into regular exercise safely. First, “start at no more than 50 percent of the exercise you were doing before Covid,” says Dr. Monica Rho, the chief of musculoskeletal medicine at the Shirley Ryan AbilityLab in Chicago. Thread in some preparatory squats, too, she advises. “When you haven’t been exercising, you lose muscle mass.” Expect some muscle twinges after these preliminary, post-lockdown sessions, especially a day or two later. But sudden or increasing pain during exercise is a clarion call to stop and return home.Exercise researchers and physicians have some blunt advice for those of us aiming to return to regular exercise now: Start slowly and then rev up your workouts, also slowly. American adults tended to be about 12 percent less active after the stay-at-home mandates began in March than they were in January. But there are steps you can take to ease your way back into regular exercise safely. First, “start at no more than 50 percent of the exercise you were doing before Covid,” says Dr. Monica Rho, the chief of musculoskeletal medicine at the Shirley Ryan AbilityLab in Chicago. Thread in some preparatory squats, too, she advises. “When you haven’t been exercising, you lose muscle mass.” Expect some muscle twinges after these preliminary, post-lockdown sessions, especially a day or two later. But sudden or increasing pain during exercise is a clarion call to stop and return home.
States are reopening bit by bit. This means that more public spaces are available for use and more and more businesses are being allowed to open again. The federal government is largely leaving the decision up to states, and some state leaders are leaving the decision up to local authorities. Even if you aren’t being told to stay at home, it’s still a good idea to limit trips outside and your interaction with other people.States are reopening bit by bit. This means that more public spaces are available for use and more and more businesses are being allowed to open again. The federal government is largely leaving the decision up to states, and some state leaders are leaving the decision up to local authorities. Even if you aren’t being told to stay at home, it’s still a good idea to limit trips outside and your interaction with other people.
Touching contaminated objects and then infecting ourselves with the germs is not typically how the virus spreads. But it can happen. A number of studies of flu, rhinovirus, coronavirus and other microbes have shown that respiratory illnesses, including the new coronavirus, can spread by touching contaminated surfaces, particularly in places like day care centers, offices and hospitals. But a long chain of events has to happen for the disease to spread that way. The best way to protect yourself from coronavirus — whether it’s surface transmission or close human contact — is still social distancing, washing your hands, not touching your face and wearing masks.Touching contaminated objects and then infecting ourselves with the germs is not typically how the virus spreads. But it can happen. A number of studies of flu, rhinovirus, coronavirus and other microbes have shown that respiratory illnesses, including the new coronavirus, can spread by touching contaminated surfaces, particularly in places like day care centers, offices and hospitals. But a long chain of events has to happen for the disease to spread that way. The best way to protect yourself from coronavirus — whether it’s surface transmission or close human contact — is still social distancing, washing your hands, not touching your face and wearing masks.
Common symptoms include fever, a dry cough, fatigue and difficulty breathing or shortness of breath. Some of these symptoms overlap with those of the flu, making detection difficult, but runny noses and stuffy sinuses are less common. The C.D.C. has also added chills, muscle pain, sore throat, headache and a new loss of the sense of taste or smell as symptoms to look out for. Most people fall ill five to seven days after exposure, but symptoms may appear in as few as two days or as many as 14 days.Common symptoms include fever, a dry cough, fatigue and difficulty breathing or shortness of breath. Some of these symptoms overlap with those of the flu, making detection difficult, but runny noses and stuffy sinuses are less common. The C.D.C. has also added chills, muscle pain, sore throat, headache and a new loss of the sense of taste or smell as symptoms to look out for. Most people fall ill five to seven days after exposure, but symptoms may appear in as few as two days or as many as 14 days.
If air travel is unavoidable, there are some steps you can take to protect yourself. Most important: Wash your hands often, and stop touching your face. If possible, choose a window seat. A study from Emory University found that during flu season, the safest place to sit on a plane is by a window, as people sitting in window seats had less contact with potentially sick people. Disinfect hard surfaces. When you get to your seat and your hands are clean, use disinfecting wipes to clean the hard surfaces at your seat like the head and arm rest, the seatbelt buckle, the remote, screen, seat back pocket and the tray table. If the seat is hard and nonporous or leather or pleather, you can wipe that down, too. (Using wipes on upholstered seats could lead to a wet seat and spreading of germs rather than killing them.)If air travel is unavoidable, there are some steps you can take to protect yourself. Most important: Wash your hands often, and stop touching your face. If possible, choose a window seat. A study from Emory University found that during flu season, the safest place to sit on a plane is by a window, as people sitting in window seats had less contact with potentially sick people. Disinfect hard surfaces. When you get to your seat and your hands are clean, use disinfecting wipes to clean the hard surfaces at your seat like the head and arm rest, the seatbelt buckle, the remote, screen, seat back pocket and the tray table. If the seat is hard and nonporous or leather or pleather, you can wipe that down, too. (Using wipes on upholstered seats could lead to a wet seat and spreading of germs rather than killing them.)
Taking one’s temperature to look for signs of fever is not as easy as it sounds, as “normal” temperature numbers can vary, but generally, keep an eye out for a temperature of 100.5 degrees Fahrenheit or higher. If you don’t have a thermometer (they can be pricey these days), there are other ways to figure out if you have a fever, or are at risk of Covid-19 complications.Taking one’s temperature to look for signs of fever is not as easy as it sounds, as “normal” temperature numbers can vary, but generally, keep an eye out for a temperature of 100.5 degrees Fahrenheit or higher. If you don’t have a thermometer (they can be pricey these days), there are other ways to figure out if you have a fever, or are at risk of Covid-19 complications.
The C.D.C. has recommended that all Americans wear cloth masks if they go out in public. This is a shift in federal guidance reflecting new concerns that the coronavirus is being spread by infected people who have no symptoms. Until now, the C.D.C., like the W.H.O., has advised that ordinary people don’t need to wear masks unless they are sick and coughing. Part of the reason was to preserve medical-grade masks for health care workers who desperately need them at a time when they are in continuously short supply. Masks don’t replace hand washing and social distancing.The C.D.C. has recommended that all Americans wear cloth masks if they go out in public. This is a shift in federal guidance reflecting new concerns that the coronavirus is being spread by infected people who have no symptoms. Until now, the C.D.C., like the W.H.O., has advised that ordinary people don’t need to wear masks unless they are sick and coughing. Part of the reason was to preserve medical-grade masks for health care workers who desperately need them at a time when they are in continuously short supply. Masks don’t replace hand washing and social distancing.
If you’ve been exposed to the coronavirus or think you have, and have a fever or symptoms like a cough or difficulty breathing, call a doctor. They should give you advice on whether you should be tested, how to get tested, and how to seek medical treatment without potentially infecting or exposing others.If you’ve been exposed to the coronavirus or think you have, and have a fever or symptoms like a cough or difficulty breathing, call a doctor. They should give you advice on whether you should be tested, how to get tested, and how to seek medical treatment without potentially infecting or exposing others.
If you’re sick and you think you’ve been exposed to the new coronavirus, the C.D.C. recommends that you call your healthcare provider and explain your symptoms and fears. They will decide if you need to be tested. Keep in mind that there’s a chance — because of a lack of testing kits or because you’re asymptomatic, for instance — you won’t be able to get tested.If you’re sick and you think you’ve been exposed to the new coronavirus, the C.D.C. recommends that you call your healthcare provider and explain your symptoms and fears. They will decide if you need to be tested. Keep in mind that there’s a chance — because of a lack of testing kits or because you’re asymptomatic, for instance — you won’t be able to get tested.
Moreover, while tariffs might put sand in the gears of global commerce, that has different implications than gears that stop entirely. Companies had many options for dealing with the trade war, whether sourcing goods from elsewhere or simply paying more for them.Moreover, while tariffs might put sand in the gears of global commerce, that has different implications than gears that stop entirely. Companies had many options for dealing with the trade war, whether sourcing goods from elsewhere or simply paying more for them.
The longer the shutdowns of Chinese production, and the more widely other countries are forced to take similar measures, the more the spread of the virus could affect the ability of global companies to do business.The longer the shutdowns of Chinese production, and the more widely other countries are forced to take similar measures, the more the spread of the virus could affect the ability of global companies to do business.
Moreover, while the Fed and other central banks may well take action to try to insulate the world economy from those shocks, their tools are ill suited to the task in many ways. The economic effects of coronavirus would act as a “supply shock,” reducing the productive potential of affected nations for reasons unrelated to the forces that more traditionally shape economic results like monetary policy or fiscal policy.Moreover, while the Fed and other central banks may well take action to try to insulate the world economy from those shocks, their tools are ill suited to the task in many ways. The economic effects of coronavirus would act as a “supply shock,” reducing the productive potential of affected nations for reasons unrelated to the forces that more traditionally shape economic results like monetary policy or fiscal policy.
Put differently: Lower interest rates won’t make a sick person well, or give public health authorities confidence that businesses can reopen. All they can do is lower borrowing costs and help encourage businesses and consumers to spend and push financial market prices higher.Put differently: Lower interest rates won’t make a sick person well, or give public health authorities confidence that businesses can reopen. All they can do is lower borrowing costs and help encourage businesses and consumers to spend and push financial market prices higher.
“We would rather have a vaccine than a rate cut and fully recognize that monetary policy is not optimized for addressing this type of shock,” said Krishna Guha with Evercore ISI, in a research note. “But it does not follow from this that the appropriate path of policy under the shock is unchanged.”“We would rather have a vaccine than a rate cut and fully recognize that monetary policy is not optimized for addressing this type of shock,” said Krishna Guha with Evercore ISI, in a research note. “But it does not follow from this that the appropriate path of policy under the shock is unchanged.”
Neither economists nor portfolio managers make particularly good epidemiologists. But what has become more clear in the last few days is that it is the science of epidemics — and the policy choices that nations make to try to address it — that will shape the economy for the near future, and maybe quite some time to come.Neither economists nor portfolio managers make particularly good epidemiologists. But what has become more clear in the last few days is that it is the science of epidemics — and the policy choices that nations make to try to address it — that will shape the economy for the near future, and maybe quite some time to come.