When historians look back at the economic fallout from the spread of the coronavirus pandemic in the U.S., they’ll likely put a pin on the evening of Wednesday, March 11.
A few things happened that night, including President Donald Trump’s speech from the Oval Office that many saw as failing to calm a nervous nation. It was followed by a precipitous drop in stock futures and, after markets opened for trading, the Dow Jones Industrial Average had its biggest one-day point loss ever.
Paul Donovan, global chief economist for UBS, pointed to Trump’s speech as a tipping point, while other economic forecasters, such as Wells Fargo, the largest U.S. bank lender, referred to “the events of the last 24 hours” as a reason to change their outlook on Thursday.
“What the president said and what is being proposed are not the same thing,” Donovan said in his morning audio comment, recorded at 7 a.m. London time on Thursday. He cited errors in the speech Trump read from a teleprompter, such as the assertion imports from Europe would be stopped. That was later walked back by the White House.
Donovan also picked up on Trump’s use of the term “foreign virus.” Global investors interpreted that as a signal the administration isn’t up to the job of handling the pandemic, he said.
“The further characterization of this as a ‘foreign virus’ seems an unrealistic assessment of the domestic U.S. risks,” Donovan said. “The market conclusion would appear to be that the U.S. president’s approach does not present the clear and coherent economic plan that investors wish to see.”
Wells Fargo economists didn’t cite the president’s speech. Instead, they took a broader approach. After issuing their monthly forecast on Wednesday afternoon, they revised it on Thursday citing intervening events.
“In the forecast that we released just yesterday, we called for a mild contraction in U.S. GDP in the second quarter with a return to growth in the following quarter,” Wells Fargo said in the update. “However, the events of the past 24 hours or so have made it painfully obvious that we need to rethink this forecast.”
The prospect of a recession now seems “increasingly likely,” the Wells Fargo statement said.
“Financial markets have melted down in the past few days, and dark storm clouds have gathered over the economy,” it said.
In addition to the president’s speech failing to reassure the markets, something else happened on Wednesday evening that spooked investors, Mark Vitner, a Wells Fargo senior economist, said in an interview.
The National Basketball Association announced that a player for the Utah Jazz had tested positive for COVID-19, the disease caused by the coronavirus, and suspended the rest of the NBA season.
“It may sound trite, but seeing the NBA shut down made it apparent to everyone that our day-to-day life was going to alter over the next few weeks,” Vitner said on Thursday. “It’s gone from cocktail conversation to, ‘Oh my gosh, this is really happening.’”
It was followed on Thursday by a cascade of cancellations aimed at stemming the spread of coronavirus. Major League Baseball suspended operations for four weeks, including spring training and the first two weeks of the regular season. In New York, Broadway shows were shuttered, and school systems across the country closed their doors.
Vitner said he expects the economy to rebound in the third quarter as the COVID-19 outbreak abates and supply chains are restored. He pointed out China already seems to be moving past the peak of the coronavirus epidemic that started there in December.
“Most of the decline in economic outlook probably is going to be due to a draw-down in inventory, so we’re likely to see a rebound,” he said.