Topline: A surprise price war between oil producers Saudi Arabia and Russia, compounded by intense investor anxiety over the continued spread of the coronavirus, triggered massive market losses on Monday.
- The Dow Jones Industrial Average lost 7.8%, or 2,014 points, the S&P 500 lost 7.6%, and the Nasdaq Composite lost 7.3%.
- Early losses of 7% for the S&P 500 triggered the market’s circuit breaker mechanism, which halts trading for 15 minutes to prevent stocks from free-falling and give investors a chance to reassess.
- The yield on the 10-Year U.S. Treasury bond plummeted to below 0.4%, signaling that investors are continuing to flee risky assets like stocks in favor of safer ones like bonds and gold.
- Oil prices plummeted by more 20% during the day, seeing their worst drop since the Gulf War in 1991; the financial services sector also suffered, with shares of JPMorgan down nearly 13% and the Financial Select Sector ETF falling 10%.
- Shares of Clorox hit a new 52-week high of $177 per share on Monday as investors flocked to the producer of cleaning products and disinfectants.
Key background: Over the weekend, Saudi Arabia—the world’s largest oil exporter—slashed its prices to levels not seen in 30 years after it could not convince Russia to agree to production cuts. The 14 members of OPEC (the Organization of the Petroleum Exporting Countries) along with some non-members, including Russia, met last week to discuss how to respond to the lagging demand caused by the spreading coronavirus. After negotiations fell apart, Saudi Aramco, the Saudi state-owned oil company, said it will offer major discounts in order to win over buyers. It’s planning to boost production to more than 10 million barrels a day and has even told some market participants that it could raise production to a record 12 million barrels a day, Bloomberg reports. Oil prices had lost more than 30% by Monday morning in response to the sudden supply shock.
Tangent: Shares of the world’s largest oil producers like BP and Royal Dutch Shell plummeted alongside global markets on Monday. Shares of BP dropped 19.2% to $25.25 on Monday— that translates to more than $20 billion in lost market value since the close of markets on Friday, and Royal Dutch Shell dropped 15.2% to $18.00 per share—that’s $25 billion in value lost.
Chief critic: President Donald Trump weighed in on Twitter about the market’s drop on Monday morning, writing, “Saudi Arabia and Russia are arguing over the price and flow of oil. That, and the Fake News, is the reason for the market drop!”
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