- Crude prices falling
- Coronavirus fears and near hysteria
- Bond market turmoil
Saudi Arabia’s decision over the weekend to instigate a crude oil price war as it escalates a clash with Russia sent oil prices down by the most since the Gulf War in January 1991 and caused the U.S. stock market to experience it single worst day sell off in nearly decade. Crude prices, along with U.S. government bond yields, are typically viewed as key barometers of economic health and confidence. Today, we may be witnessing the end of the longest running bull market in history.
The price war between major oil producers–Saudi Arabia and Russia–is riling global markets and economies at a time when economists and investors are struggling to understand how deeply the coronavirus outbreak will impact global supply chains and consumer spending. Coronavirus is an illness that has infected more than 100,000 worldwide — including more than 650 confirmed cases in the United States — and killed more than 3,000.
There is an assumption that when oil prices collapse, whether the collapse is driven by the demand side or supply side, the global economy is going to suffer. The latest tensions put the oil market in somewhat uncharted territory with pressure in terms of both supply and demand as the coronavirus epidemic threatens to sap businesses’ appetite for energy.
The plunge in crude added turmoil in equity and credit markets as investors have grown increasingly concerned about economic growth stalling. It also raised fresh concerns about the risks tied to heavily indebted energy companies in the high-yield market, and the fallout for other companies if broader credit markets tighten.
The service industry is getting hit the hardest and driving the economy into a recession as a result of the coronavirus. There is a destruction of demand in area of travel especially with the airlines and cruise lines, with entertainment such as restaurants and with sporting events.
Essentially, time like these of panic selling by the herd are not the time to sell stocks. Things are so uncertain regarding the coronavirus and even the experts appear uncertain on what will happen with the the virus. One day, uncertainty will wane and the markets will recover. You do not want to be the investor who locked in their losses at these levels.