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Stock exchanges in the USA and Asia react frightened

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Prices on the American stock exchanges came under heavy pressure again on Wednesday. The Dow Jones has lost six percent, and futures are trending weakly after Trump’s announcement of crisis measures – especially those related to Europe. The speech also caused new worries in Asia.

The traders on Wall Street are and remain nervous

The traders on Wall Street are and remain nervous

Richard Drew / AP

Prices on the American stock exchanges came under heavy pressure again on Wednesday after they had initially recovered from the heavy losses on Monday on Tuesday. The S&P 500 index ended the month down 4.9% at 2741 points, while the Nasdaq Composite fell 4.7% to 7952 points. The Dow Jones Industrial fell almost 6% to 23,569 points, more than 20% below the recent all-time high.

Bear market has started

Dow Jones Index, points (in thousands)

03/12/201003/12/202010th1520th25th1

1
Trump elected president

This is a minus, from which technically oriented analysts usually speak of a bear market. It has strengthened on the futures markets over the night after President Donald Trump has announced various measureswith which he wants to slow the further spread of the corona virus. Among other things, he would like to impose a 30-day entry ban on people who were last in Europe for two weeks (Schengen zone). Switzerland is also affected by the measure, which will apply from Friday.

As a result, the petroleum, S&P 500 and Dow Jones contracts on the futures markets lost another 4%, and quotes related to Asian and European equity markets are deep in the red. The DAX future, for example, fell by up to 7% in thin night trading.

The longest price upswing in history on Wall Street now seems to have ended after 11 years. A “bear market” is a phase in which the prices on the stock markets fall in trend or fluctuate very little.


Nervous investors cannot be reassured

The nervousness among investors is enormous. This can be seen from so-called fear indicators such as the VSMI in Switzerland, the VDAX in Germany or the VIX in the USA. They are as high as they were last in the financial crisis a little over ten years ago. At that time, the S&P 500 had lost a good half of its value in two years before recovering from it after huge stimulus measures and finally switching to the above-mentioned bull movement.

The correction continues

indexed exchange rate development in francs

02/27/201911.03.202090100110120

The background to the sharp drop in share prices is the fact that investors do not appear to be particularly convinced of the hesitant attitude of the American government and the announcements made in the meantime. It is therefore unclear what could calm the situation.

On the other hand, until recently, investors were quite blue-eyed and willing to pay high prices for all kinds of securities without properly considering the risks. In such phases, the impulse of “flipping a butterfly wing” is enough to lead to a correction.

The growing concern about the spread of the corona virus and the economic consequences of the countermeasures are similar. In fact, the supply chains of many internationally active companies have been interrupted in this context, and the quarantine measures and the behavior change of the consumers bring about further significant shortfalls in growth in the short term.


Titles from oil, travel and events companies under pressure

This is especially true for the travel and event industry. As a result, airlines, cruise companies and online travel agents have seen their stocks fall sharply in the past few days after long being investors’ favorites. On Wednesday, the papers of the Norwegian Cruise Line, Royal Carribean Cruises, Carnival, Expedia, Boeing and United Airlines were among the biggest losers on Wall Street with price losses of up to 27%.

The papers of the battered aircraft manufacturer Boeing, on the other hand, not only feel the consequences of the mismanagement that led to the company’s bestseller being grounded, but also weakened its financial position due to questionable share buybacks. In the meantime, it has become known that Boeing would like to use its almost $ 14 billion credit line agreed with banks to make ends meet.

Crash on cruise company shares

indexed exchange rate development in francs

02/01/201311.03.2020100200300400

The shares of the oil companies also suffered a sharp drop in prices. The prices of Apache, Noble Energy, Occidental Petroleum, Diamondback Energy, Marathon Petroleum and National Oilwell Varco prices fell by between 12 and 24%. They have to deal with the fact that the price of the black gold will remain lower than they expected for some time. In fact, the weaker growth leads to lower oil demand at a time when the market was well supplied anyway. In this context, a price war also appears to be escalating among providers, some of whom have announced that they will flood the market with oil – with bitter consequences for highly indebted providers in the United States. There seems to be a wave of bankruptcy there in an area that President Donald Trump had been really proud of for a long time.

In the meantime, banks and forecasters have started to lower their growth and profit forecasts for companies. This is usually not a good thing for the price development on the stock exchanges, especially if the stocks were previously highly valued. Goldman Sachs analysts have argued that investors have reduced their equity positions in recent weeks, but not to levels that have been bottomed out by other major correction moves in this cycle. Citigroup experts predict an average Decline in corporate profits by between 7% in the US and 15% in the emerging markets. On this basis, further turbulence on the financial markets should come as no surprise.


Asia is terrified

The markets in Japan and Korea started losses Thursday while still waiting for Trump’s speech on Wednesday evening (local time). But instead of calming the markets, the American president frightened them with the entry ban for people from mainland Europe that will come into effect on Friday. Shortly after the start of the speech, the Nikkei dropped rapidly from 19 131 points to under 18 600 points within half an hour and remained more than 4% below the previous day’s value. The Trump speech would have disappointed the markets and intensified the fear of a global crisis, judged the Japanese business newspaper «Nikkei».

After a short breather, we continued downhill. At 11:35 a.m. (local time), the Nikkei went for lunch with 18 412 points – 5.2% below the previous day’s level. The other markets in Asia were also shocked. In Korea, the Kospi index dropped 4.3% within the first half hour after Trump’s speech began. Shortly before 12 noon (local time) it was still 3.8% in the red. The Chinese Shanghai Composite Index lost 1.2% until 10:52 a.m. (local time), the Hong Kong Hangseng index fell 3.6%, the Singaporean Hangseng index 3.8%.

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