The Dow Jones Industrial Average plummeted at the opening bell on Monday, sinking by more than 1,800 points as a fight over crude oil production created heightened pressure on a global economy already suffering the effects of the coronavirus epidemic.
Within minutes of the opening bell, the S&P 500 plunged by 7 percent, triggering a “circuit breaker” that halted all trading for 15 minutes.
Traders had anticipated a bloodbath on Monday, after oil prices cratered overnight by 30 percent, pushing all three major averages to declines of around 5 percent.
Investors took shelter in safe havens, pushing gold to a seven-year high and pushing the 10-year Treasury yield to an all-time low of 0.3 percent by early morning.
The sell-off comes as fears mount that the viral outbreak will further disrupt supply chains, travel, and production around the world.
Conditions worsened drastically after the world’s oil-producing countries failed to strike a deal at a meeting between cartel members in Vienna last week. The stalemate continued over the weekend, with Saudi Arabia and Russia reportedly planning to ramp up production on their own terms after the current deal expires at the end of the month.
The spat pushed down the price of oil by the biggest amount since the Gulf War.
“We’ve basically lost all our anchors,” Mohamed El-Erian, chief economic advisor at Allianz, said Monday morning. “We lost the economic anchor with the coronavirus. We’ve lost the policy anchor with people losing confidence in the Fed’s ability to turn things around. And over the weekend, we lost a market anchor with OPEC,” he told CNBC.
The market mayhem means participants are now pricing in an additional rate cut from the Federal Reserve, anticipating that the central bank will slash the current range of 1 to 1.25 percent this month down to zero, a level not seen since the financial crisis.
The next Fed meeting is set for March 17-18, in Washington, but some market watchers say a move could come sooner. The economic fallout from the virus pushed the Fed to implement an emergency rate cut last week, the first time it has made such a decision since the Lehman Brothers bank collapse in 2008, one of the triggers of the recession.