COVID outbreak causes volatility in stock markets and commodities

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SALT LAKE CITY – The continued unpredictability of the US financial markets was highlighted earlier this week with the astonishing crater in crude oil futures, which saw West Texas Intermediate futures close at minus 37 , $ 63 a barrel Monday – the lowest closing price in history.

Despite the instability of the past few weeks, a local analyst said there was some light ahead that could signal a possible economic breakthrough in the not-so-distant future.

“This is a health care crisis that has created an economic panic,” said Gary Gygi, president of Utah County-based Gygi Capital Management. “If we were to compare (to) the Great Recession, then it was a financial crisis following a real estate bubble that burst.”

In this case, he said, it took almost a decade for the financial system to recover. This time around, it seems unlikely that the recovery will emulate the long history of this financial crisis, he added.

“There are a lot of thoughts from a lot of people, myself being one of them, that the economic rebound will be pretty robust,” Gygi said. “The reason why a number of us think the stock market was at all-time highs before this pandemic started. The economy was strong enough, the stock market was strong enough. And then the pandemic struck (and) stopped everything. “

He said based on the core principles supporting a strong economy, these principles should be able to recover as the country begins to reopen its businesses and move towards a post-pandemic society.

“I don’t think it will take long for the market to recover. I don’t think it will be as quick as the fall. The drop happened incredibly quickly – in 10-14 days you had a 25% to 30% drop in the market, ”Gygi said. “I don’t think anyone expects the market to recover in 10-14 days after the volatility subsides. But I think you’ve had an incredibly strong rebound in the market over the past 10 days, almost a 50% recovery from the market fall to its lowest. “

Meanwhile, a historic day for crude oil futures saw the price of a barrel drop deep into negative territory for June stocks. While the valley-shaped trough was a first, futures contracts for July and August were above $ 20 a barrel. Gygi said the increase in prices indicates that traders expect oil prices to increase a bit during the summer months.

“Most investors think the price of oil will go up. We have an oil glut, which means we have an awful lot of oil, ”he said. “People don’t drive their cars, businesses are closed, so we as a society use a lot less crude to run our businesses (and) drive our cars. There is not that much demand and we have a lot of oil. This is why the price of oil is so low.

He attributed the sharp drop in oil prices to a conflict between two of the world’s major oil producers.

“Russia and Saudi Arabia kind of had a tantrum and tried to pressure each other and it hurt shale oil producers in the United States because it brings the price down. oil, ”he said. Currently, Saudi Arabia and Russia have agreed to cut oil production, which should push the price up a bit, he said.

Even still, with so few drivers and much lower demand for gasoline, the price at the pump is expected to remain lower than usual for this time of year, he added.

He said that barring the unforeseen, the chances of an economic recovery look relatively bright. There is plenty of reason to believe that if the economy starts to recover and there is no second wave of the pandemic, things could improve dramatically, he said.

“Assuming people continue to maintain social distancing, wear masks and the like, as the economy opens up, we may not have another resurgence of the coronavirus,” Gygi said.


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