US futures markets fell sharply early Monday morning and hit the so-called 5% ‘down limit’ – a limit that forces a halt in trading when markets move either up or down by 5%. This is done to prevent panic selling and, more unlikely, panic buying when share prices are deemed to move too fast and lose track of economic reality.
When US markets opened late afternoon South Africa time, the S&P 500 Index immediately dropped by as much and, after a trading halt, fell a total of 7% from Friday’s closing levels.
The decline followed the fall of around 10% on most world markets during the last week or so, when fears of the impact of the spread of the coronavirus sent international fund managers scurrying.
The drop on Monday followed nothing more than a few remarks from Russian President Vladimir Putin.
He indicated that he wasn’t too concerned with the oil price being at its then-lower levels of around $37 per barrel. Saudi Arabia retorted that it wasn’t worried either and was not about to prop up the oil price with production cuts.
That was all speculators and investors needed to reconsider their outlook for the oil price in an environment marred by an oversupply of oil and a long list of uncertainties with regards to economic growth.
If the trade war between China and the US had weakened the patient, the coronavirus and the fight about oil production sent the sufferer straight to intensive care – without passing through the pathology laboratory for tests.
The fall in US and international share prices is, thus far, similar to the market crash following the September 2001 terrorist attacks on the Twin Towers in New York.
As Investopedia puts it: “On the first day of NYSE trading after 9/11, the market fell 684 points, a 7.1% decline and setting a record for the biggest loss in exchange history for one trading day.
“At the close of trading that Friday, ending a week that saw the biggest losses in NYSE history, the Dow Jones was down almost 1 370 points, representing a loss of over 14%. The S&P index lost 11.6%.”
Six years later, by the end of September 2008, the US market set a new record by falling 777 points when several US banks went bankrupt due to reckless lending and a nationwide property market meltdown.
Now we are here again.
The JSE did not escape injury, not in 2001 or 2008, and not this week.
It dropped a massive 3 000 points – more than 6% – within minutes of the opening bell on Monday morning. In all, the JSE Top 40 Index has dropped more than 8 000 points since its recent high of 52 212 points on February 19, to close at 43 892 on Monday afternoon in anticipation of a weak trading session in New York.
The biggest casualty was Sasol, due to the drop of around 25% in the oil price. Sasol opened up more than 40% lower and ended the day nearly 47% lower at R85.35 – and everybody thought it was a crisis when the share dropped to below R200 a few weeks ago.
BHP fell by nearly 16% on Monday due to its oil and energy interests, to close at just below R233 per share – nearly 30% lower than its recent high of R329 just two weeks ago.
MTN Group dropped 15%, as investors focused on its foreign currency debt and the decline in the rand to above R16 per dollar, while Anglo American lost 10% on fears of a global economic slowdown. Other large shares dropped by between 5% and 8% on Monday..