Wall Street’s Black Swan

The CoronaVirus (COVID-19) which originated in China in December 2019 has had a domino effect on the US economy. The virus is not only a pandemic spreading illness, but is also spreading fear, uncertainty, and erosion in consumer confidence. 

The foreseen unknown as referred to as “Black Swan” is impacting consumer spending in the US. This will implicitly be reflected in companies achieving lower than expected results, which in turn will cause an economic downturn. These negative effects are felt in the plummeting of the financial markets. Some are referring to Covid-19 as the black swan for the financial markets because it was unexpected and there is no way to know the extent of its impact or to know when it may wain. 

Prior to COVID-19 spreading across the world, the virus was not concerning for people residing outside of China. COVID-19 was considered to be a problem for China, and people were hoping that it would be contained in China. Unfortunately, COVID-19 rapidly spread to Italy, South Korea, the United States, and across the world.

People are very scared about the danger of contracting COVID-19, but this is not the only conundrum. In addition to all of the negative health consequences resulting from COVID-19, the global financial markets were severely impacted. Consumer confidence is expected to drop, and there is no way to predict when that may change. This is affecting many sectors and most companies are expecting lower revenue and profits. Economic forecasters cannot determine the duration of the impact and the severity of the fallout. 

Many sectors and industries are dramatically impacted as such. Airlines are now cutting back on flights that are traveling per day due to the current global health crisis. Cruise ship companies are seeing a sharp decline in booking, entertainment industries, and hospitality industries, Uber and Lyft are all facing challenges as there is diminished demand for their services. All of these different sectors of the economy have seen an immense decline in their consumer numbers which is reflected in huge declines in their bottom line. 

Lack of consumer confidence has always impacted the economy and financial markets, but COVID-19 and the global health concerns are throwing a curveball across a myriad of industries, worldwide markets, and even the political playing field. Expected lack of revenue and expected decline in profits that all of these companies may face may slow down hiring and even lead to layoffs. The major impact in the markets is mainly due to the ongoing uncertainty.

On the flip side, there are a few companies that have seen an increase in demand from the spread of COVID-19. For instance, streaming services like Netflix, Hulu, Disney Plus, and Amazon Prime are seeing increased demand. Also, hand sanitizer/disinfect industries are seeing outsized demand. It remains to be seen how this surge in demand will impact their bottom line because many companies cannot keep up with the demand for their products.  

The Dow Jones Industrial retreated by approximately 19% in just 10 trading days, the fastest percentage decline in the shortest amount of time. In essence, the market is down for reasons pertaining to uncertainty and fear, lack of consumer confidence, lower expected results, and poor visibility going forward. 

The impact of COVID 19 is so widespread and severe, it is possible the US government is looking into fiscal and monetary policies to mitigate the impact. For example, reducing payroll taxes, providing assistance to disrupted workers, and assuring that the financial markets function properly. 

According to Treasury Secretary Steven Mnuchin, “This is about providing liquidity to get through the next few months.” 

Who really knows how long COVID-19 will end up plaguing the United States and global economies. Perhaps, only time will tell. In the meantime, wash your hands, please.