An oil price war triggered by the spreading coronavirus sent already anxious financial markets into chaos Monday, with stocks diving and crude prices collapsing in a worldwide panic that threatens a global economic recession.
The Standard & Poor’s 500 index dropped 7% in the first minutes of the day, triggering a 15-minute halt in trading. When trading resumed, stocks slumped a bit further and then regained some of the lost ground. The S&P 500 was down 6.4% around 8 a.m. Pacific time. The Dow Jones industrial average was down 6.6%, or about 1,700 points. The Nasdaq composite was down 5.9%.
Treasury yields fell to a new record low as investors fled for the safety of government bonds.
The energy stocks were the hardest-hit sector in response to the plunge in oil prices. Marathon Oil shares plunged more than 40% and Occidental Petroleum stock tumbled 29%.
Among the largest energy firms, Chevron sank 13.2% and ExxonMobil was down 9.1%.
Financial and industrial shares also showed some of the biggest declines as recession fears mounted. JPMorgan Chase fell 13.1%, Caterpillar lost 9.9% and Boeing Co. fell 9.3%.
Cruise stocks took a hit after the U.S. warned Americans to stay away from cruise ships as the coronavirus spreads. Royal Caribbean Cruises dived 22.5%. Norwegian Cruise Line Holdings dropped 17.6%. Carnival was down 13.8%.
Government bond yields continued to drop to record lows. The yield on the 10-year Treasury note fell to 0.54%, down sharply from 0.70% late Friday. Early last week, it had never been below 1%. At the start of this year, it was 2%.
Stocks and haven assets showed little immediate reaction to news that President Trump’s administration is drafting measures to blunt the economic fallout from the spread of the coronavirus, including a temporary expansion of paid sick leave and possible help for companies facing disruption from the outbreak.
Overnight Asian financial markets plummeted, and European stocks were swooning Monday, in the wake of Saudi Arabia’s move over the weekend to drop oil prices and boost output in an angry response to Russia’s refusal to reduce production in the face of falling demand from China, whose economy has been slammed by the virus and efforts to contain it.
Financial markets were already on edge over the spreading coronavirus when OPEC and key ally Russia failed to agree Friday on a cut to oil production that would have contained the plunge in the price of crude caused by the coronavirus outbreak’s massive disruption to world business.
Although cheaper oil will translate into more affordable energy for consumers and businesses, it hurts oil-producing countries and companies. Thousands of workers have already been laid off in the U.S. oil patch. The 14 OPEC countries had wanted to cut output by 1.5 million barrels a day, or about 1.5% of world production. OPEC countries such as Saudi Arabia and Iran say they need nonmember allies such as Russia to take 500,000 barrels of that cut on themselves.
Russia, however, proved reluctant. Failing to reach a deal fired the starting gun on the price war.
The price war caused about a 25% fall in crude prices, to the lowest level in almost 30 years, and the U.S. dollar fell as oil is priced and traded globally in dollars.
While the collapse in oil will lower pump prices for American consumers, it will pressure U.S. crude producers and investments, and increases the risk to broader credit markets.
The Federal Reserve, which made an emergency cut in interest rates last week, moved early Monday to increase short-term funding to support the U.S. lending market.
“With the combination of the implications of the oil stand-off and the outbreak, I now believe that it’s almost inevitable that there will be a global recession this year,” said Nigel Green, chief executive of DeVere Group, an independent financial advisory group.
Monday morning’s moves exacerbated an already volatile U.S. stock market.
The Cboe Volatility Index surged to its highest level since 2008 on Monday as a plunge in oil prices frazzled traders already on edge over the coronavirus.
The VIX “fear index,” a linked gauge of volatility, jumped as high as 62, its highest level since December 2008 on an intraday level. The VIX was already clocking eye-watering levels last week, as stocks were whipsawed by virus headlines. On Friday it surpassed 50, a threshold last breached in February 2018. Although those moves may appear extreme, over the last 10 sessions, the S&P 500’s realized volatility is 63.
Times staff writer Suhauna Hussain contributed to this report. The Associated Press and Bloomberg were used in compiling this report.