No, the Coronavirus is Not Responsible for the Fall of Stock Prices

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A Socialist Project e-bulletin ... No. 2018 ... March 11, 2020

No, the Coronavirus is Not Responsible for the Fall of Stock Prices

Éric Toussaint

We are witnessing a big crisis in the stock markets on Wall Street, Europe, Japan and Shanghai, and many blame the coronavirus for it. In the last week of February 2020, the worst week since October 2008, the Dow Jones fell 12.4%, the S&P 500 fell 11.5% and the Nasdaq Composite fell 10.5%. The scenario is similar in Europe and Asia for the corresponding period. On the London Stock Exchange, the FTSE-100 fell by 11.32%, in Paris the CAC 40 fell by 12%, in Frankfurt the DAX lost 12.44%, on the Tokyo Stock Exchange the Nikkei fell by 9.6%, the Chinese stock exchanges (Shanghai, Shenzhen and Hong Kong) also fell.

On Monday, March 2, following (promises of) massive interventions by central banks to support the stock markets, most of the indices went up again except in London. On Tuesday, March 3, the panicked US central bank, the Fed, lowered its key rate by 0.50%, which is a considerable drop. The... Fed’s new key rate is now in a range of 1 to 1.25%. It should be noted that the inflation rate in the United States between February 2019 and January 2020 reached 2.5%, which means that the Fed’s real interest rate is negative. The mainstream press writes that this measure is intended to support the US economy threatened by the COVID-19 epidemic. The leading American media put out large headlines "The Fed just hit the coronavirus panic button."

However, the poor health of the American economy dates back well before the first cases of coronavirus in China and its effects on the world economy. In short, the Fed and the mainstream press are not telling the truth when they state that the measure is designed to deal with the coronavirus. In spite of the Fed’s decision, on Tuesday March 3, the S&P 500 fell again by 2.81% and the Dow Jones fell by 2.9%. On March 3 and 4, several Asian stock exchanges also experienced a decline. Nevertheless, on March 4 there has been a stock market rally in New York to celebrate the return of Joe Biden to the presidential race in the United States during the Democratic primaries on March 3, as this is a relief for them in front of Bernie Sanders. Joe Biden is clearly the candidate of the Democratic establishment and the billionaires who support that party.

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