Why Is the Stock Market Plunging So Fast? Blame Coronavirus

The coronavirus pandemic is having an enormous effect on the stock market, which likely won't end soon.

Stock prices have plummeted more in the past week than they have in decades, more than decimating many retirement savings and 401ks. While many experts have long predicted a market correction was looming, the current public health crisis brought about by the coronavirus pandemic has had an enormous impact on the stock market, which likely won't end soon.

To appreciate just how leading indices have fallen in the past few weeks, like the Dow Jones and S&P 500, one must first appreciate the remarkable and historic bull run the investment community has enjoyed.

Mar. 9 marked the 11th anniversary of the longest-running stock bull market in history, as Business Insider explains:

Stocks have been climbing higher since the post-financial crisis low on March 9, 2009. The bull market in equities officially became the longest-ever in August 2018, and has continued to gain since. A bull market is defined as a 20% increase on a closing basis that is never interrupted by a subsequent 20% decline.

The S&P 500 has gained 339% in the 11-year period through Friday's close and boasted an annualized return of 15.3% through 2019. While markets move in reaction to a number of events, there have been four main drivers of the most recent bull rally – strong corporate earnings, stock buybacks, easy monetary policy, and solid participation.

That was last week, however. Since that report just eight days ago, things have fallen precipitously due to the coronavirus pandemic.

Let's just first point out how quickly things have changed, from a bull market run to a Bear market.

In the last week, and for the first time ever, the S&P 500 Index fell 11.98% down from a 52-week high to a 52-week low in less than three weeks. Also, the S&P 500 was forced to hit the circuit breaker and triggered a trading halt four times.

The New York Stock Exchange also suffered a tough run. There were more 90% down days (where 90% or more of NYSE-traded stocks closed lower for the day) than any time in recent history. And, the Nasdaq Composite Index suffered its largest one-day percentage decline ever at -12.32%.

To combat the spread of COVID-10, President Donald Trump announced new guidelines during a Monday press conference, which highlighted social distancing and recommended limited travel and dining. As a result, the foodservice and travel industries are taking huge economic hits, which has many financial and economic experts worried about a domino effect.

Even politicians who have long argued against big government are now actively supporting government bailouts to spur the U.S. economy. Former Republican presidential candidate Mitt Romney has suggested every American received $1,000 from the federal government to pump up the economy.

The coronavirus pandemic is a serious public health risk, but there is hope that current guidelines of social distancing will abate the spread or "flatten the curve."

But as far as the economic impact of COVID-19, that may have much longer and lasting effects than the virus itself.

Filed Under