Epidemic spreads, stock market turmoil, US elections add variables
Our reporter Tong Peifeng Jiawei Teng Yupeng
On March 14, local time, the White House doctor said that the test result of US President Trump ’s new crown virus was negative, which relieved the outside world. Just one day ago, Trump just declared a state of emergency, which opened the curtain on the U.S. comprehensive response to the new crown epidemic.
Trump announced that the federal government will launch a $ 50 billion emergency fund reserve. Subsequently, the US stocks soared, the Dow closed up nearly 2000 points, and the three major stock indexes rose more than 9% on the day.
Prior to this, the US stock market once again set a new record: two fuses within a week, the three major stock indexes fell into the bear market range at the fastest rate in history, the Dow plummeted 9.99%, second only to the "Black Monday" drop in 1987.
Jin Canrong, deputy dean of the School of International Relations at Renmin University of China, said in an interview with this reporter that the U.S. stock market turmoil occurred during the Trump administration's inability to respond to the epidemic. Will affect Trump's re-election.
Outbreak spread hits stock market confidence
In the tug-of-war between the spread of the new crown pneumonia epidemic and the active implementation of policies by various countries, investors are completely unable to understand the "temper" of the market. As Wall Street investment boss Howard Max said, the market has entered an unknown state.
Jin Canrong believes that there are three main reasons for the two previous US stock market meltdowns:
First, the spread of the epidemic has dampened market confidence, and Trump's direct announcement of a one-month suspension of flights between the United States and Europe without consultation has increased the market's fear of the epidemic.
Second, Saudi Arabia launched an oil price war, Russia took the battle, oil prices fell, and a number of US shale oil and gas companies were hit. In recent years, the United States has replaced conventional oil and gas with shale oil. The market share of shale oil is particularly large, and the cost of shale oil extraction is higher than that of ordinary oil and gas. Therefore, if the current oil price war has continued, the United States will have a batch of Shale oil and gas companies are going bankrupt, and their nearly $ 1 trillion in debt will explode.
Third, U.S. stocks are a bit inflated. Schiller, the Nobel laureate in economics, has said that the U.S. stock market is up 40%, so he said he would definitely pull back in a timely manner. Now it's down 20%, which is not enough in his opinion.
Looking back at the past week, the mood of US stock investors is really mixed. On Monday, the opening of the Dow triggered a second fusing in history, falling more than 2,000 points that day. The Dow rebounded nearly 1200 points on Tuesday, and fell nearly 1500 points on Wednesday. It triggered a fuse again on Thursday. It fell more than 2350 points on the day and rose nearly 2,000 points on Friday.
Gong Ting, an assistant researcher at the Institute of American Studies of the Chinese Academy of International Studies, said that US stocks are at historically high valuations, and coupled with the impact of the epidemic, there is still plenty of room for continued correction and decline. If the Trump administration ’s policies and enforcement efforts can stabilize the US epidemic situation and show a positive trend in a relatively fast time, the probability of US stocks stabilizing or even rebounding in the short term is not small.
Gong Ting said that the global central banks have recently adopted interest rate easing measures, which can alleviate the panic in the financial market to a certain extent, but the short-term impact compared to the epidemic still appears to be limited, so the next few weeks will be critical. Follow closely.
Trump reelection encounters "black swan"
The United States' declaration of a state of emergency means that the federal government can use more resources to fight the epidemic and make a more flexible and rapid response. Trump can implement tougher anti-epidemic measures in the name of an emergency. This gave the market confidence to a certain extent, and the US stock market ended a week of shocks.
However, all of this has not diluted external concerns about the US election. The US election is in the heat of the party's primary elections. It is still unknown how the epidemic will affect voter turnout, voter security, and large canvassing contests.
Jin Canrong's analysis said that there are some laws in American politics, and if the economic situation is quite good, then the current president is relatively easy to be re-elected. Trump is more proud that since he came to power in 2017, the US stock market has been very good, and the wealth effect of American shareholders has been good. However, due to the impact of the new crown epidemic, the US stock market has experienced unprecedented shocks. The economic growth rate of the United States this year is definitely lower than last year, which is not good for Trump's re-election.
Jin Canrong said that in fact, one month ago, everyone thought that Trump's re-election was not a big problem. In early February, he passed the impeachment case. In addition, his Democratic opponents were also weak. Now skepticism has begun, mainly because of the new crown epidemic, which is a sudden situation that no one can think of. Trump has emphasized several times that the outbreak will be fine by April. But for now, his judgment is not very sure, because experts from the World Health Organization have been issuing warnings that don't rely on the weather to solve the problem.
Gong Ting believes that the rapid spread of the epidemic and the panic caused by the plunge in US stocks are a "black swan" for Trump's re-election. If the Trump administration responds improperly, the outbreak will not be controlled, and US stocks and financial markets will continue to be volatile, which will have a negative impact on their election and support rates. Polls have shown that the epidemic has reduced Trump's approval rating.
"It can be predicted that in order to consolidate the support rate, Trump will continue to take various measures to deal with the epidemic, and how its effect will have an important impact on the next election trend." Gong Ting said.