Global stock markets are hurtling toward their worst week since the financial crisis

Tough week.
Tough week.
Image: REUTERS/Aly Song
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Coronavirus fears are making global stock markets ill.

The S&P 500 index of US stocks and the MSCI World Index, a basket of equities from developed markets, are having their worst week since the financial crisis. As of midday trading today, the S&P was down 9.6% for the week and the MSCI World Index had sunk 13.2%—for both indices, their steepest weekly drop since the week ended Oct. 10, 2008.

The tech-heavy Nasdaq has shed 12.3% over the past week, and the MSCI Emerging Markets index slipped 4.4%. Several major indices officially entered correction territory yesterday, the technical term for a decline of 10% or more from a recent peak. Altogether, the virus has so far wiped $6 trillion from global equities.

Meanwhile, the VIX “fear” index, which rises alongside expected volatility in US stocks, has soared. The VIX yesterday hit 39.2, its highest level since 2015, and is on track for its largest weekly rise ever since a record-setting jump also in the week ended Oct. 10, 2008. “The volatility in the global equity markets has been unsettling for investors to say the least,” investment manager Richard Bernstein Advisors wrote in a research note (pdf) today.

While new coronavirus cases in China are thought to be stabilizing, the virus is still spreading in the rest of the world, sparking fears of a pandemic. The World Health Organization has raised the global risk of coronavirus to “very high” from “high.”

In a research note today, Morgan Stanley cited the ability to control outbreaks in Italy and Korea and the scope of the virus’s spread in Europe and the US as key factors to watch for global markets. “Demand destruction is likely to be exacerbated in the near term as health authorities impose containment measures and as consumers themselves refrain from activities such as tourism, shopping in physical retail stores, and entertainment,” analysts wrote. “The containment measures imposed by health authorities are also likely to disrupt production activities, as is the case in China, where production activities are still resuming at a slow pace.”

Elsewhere, talk of coronavirus has infected company earnings calls and led to a steadily-growing list of cancelled world events. At least for now, the disruptions to the markets, events, and regular life are likely to only get worse.