Reality check on Wall Street
Dow Jones Industrial Average falls More than 1000 points
San José, CA – U.S. stocks got a reality check on Monday, February 24, with the Dow falling more than 1000 points, or 3.5%. The NASDAQ index, with a heavy representation of technology company stocks, fell a bit more, while the broadest measure of the stock market, the S&P 500 fell a bit less.
Almost all the news blamed the spread of the new coronavirus (COVID-19). While China’s firm measures, including locking down virtually the entire province of Hubei, appear to be taking effect as the number of infections seem to be leveling off. Hubei has a population of some 70 million and is where the epicenter of the virus is in the city of Wuhan.
While the U.S. corporate media have focused on criticizing China’s efforts to contain the coronavirus and its socialist system, capitalist countries, despite having clear warning, are seeing soaring cases. In south Korea (Republic of Korea), where there were only 28 reported infections on February 11, there are (at latest count) 833 confirmed cases. Italy has also seen a large increase in numbers. A week ago, Italy reported only three infections, and at latest count there are over 200.
The spread of the virus in South Korea, which is a major exporter of intermediate goods (manufactured goods that are used to make final products, such as parts for cell phones), and in northern Italy, which is near to the other largest EU economies of Germany and France, has increased fears of major economic disruption across the capitalist world.
But the fact of the matter is that across the capitalist world, major economies were already facing a sharp slowdown or even a contraction before the coronavirus hit. Hardest hit was Japan, which in the October to December 2019 quarter, saw a big drop, which if extended for a year, would come to 6%, more than the entire U.S. fall in the 2007-2009 recession. Major economies in Europe also saw a sharp slowdown (but not a contraction). The entire eurozone grew only 0.1% from October to December, which was less than one-half of one percent at an annual rate. The German economy didn’t grow at all, while the economies of France and Italy actually shrank.
Even in the United States more signs of economic weaknesses have showed up. A measure of economic activity in the services sector fell into contraction territory on Friday, with the Markit Purchasing Managers Index slowed to 49.4 (any measure below 50 shows a contraction). But up until Monday, U.S. stock largely shrugged off signs of economic weakness and powered to record highs.