COVID-19 (Coronavirus) Economic Impact Sweeps Down on Global Economy Like a Fat Black Swan

The Great Recession

It is the senseless things of this world that sometimes knock sense into the high and mighty whose hubris causes them to believe they cannot fall. In this case, the tiny COVID-19 virus (coronavirus) is bringing down a global house of cards long perched to fall — locks, stocks, and barrels of oil. 

Stock investors thought the over-Fed market’s bull run would prove immortal, but all the overripe market needed was for a fat, black swan to drop down on the market’s head and knock some sense into it. Economic damage worldwide, however, is far from limited to stocks. Some of it seems almost silly or bizarre, but such is the case when the entire global economy is already in ill health, having survived on Fedmed for a decade.

The economic impact of this little virus is already pandemic. While it is fear more than actual health problems that has apparently kicked the entire world in the butt right now, the lack of medical reality big enough to merit the fear does not in any way diminish the reality of fear’s economic impact.

Today, the little COVID-19 virus delivered the third biggest point-drop in Dow history, suddenly turning the long overheated stock market hypothermic by taking out all of 2020’s gains in a single day! Wall Street may be stunned, but no one reading here is. A day like this would put any investor in cold sweats about what the future holds.

Still, I’ve seen virus scares come and go, and I’ve even said in the past that one of those viral scares (ebola) would likely crash the stock market; but it didn’t quite do that. So, I want to point out up front that it is important to keep in mind — even on a day like today — that the market fell during the ebola scare just as it has now, but then it quickly recovered. So, too, now, investors will just as readily go back to their foolhardy hubris if this virus goes away before the month of May as flu viruses usually do on their own.

Look, the track record on viruses and diseases over the past 20 years has been clear: Any market impact is temporary and/or minimal at best. Look at SARS in 2003, $SPX rallied over 20% in 2003. But the backdrop was different. The US just came out of a recession and markets had bottomed in 2002. Markets in 2003 were at the beginning of a new business cycle.

This cycle here is old, and one could argue was merely saved again by a Fed going into full easing mode in 2019.

But given the fact that the Fed failed to normalize in the lead up to 2018 and was stopped dead in its tracks because of a 20% market correction and was forced to go back into full easing mode the concern is that the Fed just wasted precious ammunition.

Northman Trader

Wouldn’t you know it would be a senseless little virus like COVID-19 that has knocked all common sense out of the world? (An easy task in an economy that was already senseless.)

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