What happened: The Dow fell 12.9% as fear about the coronavirus pandemic and the ensuing global recession escalated, wiping out three years of gains. The S&P 500 dropped 12%. US stock futures are up slightly on Tuesday, but the market mood remains grim.
The VIX, a gauge of stock market volatility, spiked 43% to 82.69 on Monday as coronavirus fears ripped through Wall Street. That takes out the previous record set in 2008.
It’s the VIX’s fastest spike since the 1987 crash, according to Bram Kaplan, executive director of equity derivates strategy at JPMorgan.
“The Covid-19 pandemic sparked the fastest reassessment of equity market fundamentals and risk in the last 30 years,” Kaplan told clients on Monday.
He noted that the S&P 500 recorded its quickest bear market ever, falling 20% from its peak in just 15 trading days. That’s twice as fast as the next quickest meltdown. That was in 1929, and it took 30 trading days.
Feeding the volatility is the rapid thinning out of markets, which is making it difficult for buyers and sellers to put a price on assets. Kaplan notes that open orders for S&P 500 futures have plunged about 90% to record lows since the start of the Covid-19 panic.
Investors have woken up to the fact that the world is entering a sharp recession as curfews and lockdowns ripple across the United States and Europe. The question now is just how bad the economic contraction will be.
“Whereas 10 days ago there was some legitimate uncertainty about whether the global economy was in the process of going into recession — 10 days later, there’s no question that it is,” David Wilcox, former head of research and statistics at the Federal Reserve Board, told me.
Could stock exchanges shut down entirely?
As market turmoil reaches an all-time high, voices calling for the total closure of stock exchanges are getting louder.
The concern: Logistical issues as traders work from home or at disaster recovery sites could be amplifying market stress and volatility. That’s spurred discussion about shutting exchanges while the situation is brought under control.
Happening now: The Philippines suspended trade on its stock exchange as of Tuesday “to ensure the safety of employees and traders in light of the escalating cases of the coronavirus disease.” And Australia’s corporate regulator has asked large stock market participants to limit trades per day until further notice, citing “exponential increases” in volume.
There is some precedent for closures in the United States. But John Higgins of Capital Economics points out that those shutdowns were practical — not because of volatility.
That was the first shutdown of markets since 9/11, when exchanges were closed for four days following considerable damage to physical and electronic infrastructure caused by the destruction of the World Trade Center.
Stacey Cunningham, president of the New York Stock Exchange, tweeted Monday that a shutdown “would only further compound the current market anxiety.”
“Closing the markets would not change the underlying causes of the market decline, would remove transparency into investor sentiment, and reduce investors’ access to their money,” she said.
Amazon is hiring 100,000 workers as orders skyrocket
“Our labor needs are unprecedented for this time of year,” Amazon said in a blog post Monday. The company has said that customers could experience longer delivery times than usual because of the high volume of orders.
“You’re looking at one of the biggest negative job numbers we’ve ever seen,” Hassett told CNN’s Poppy Harlow on Monday.
Also today: US retail sales for February arrive at 8:30 a.m. ET. Industrial production data will follow at 9:15 a.m. ET.
Coming tomorrow: Weekly US crude oil inventories are increasingly important with oil prices at their lowest level since early 2016.