Contagion: Global Supply shock.

The Covid-19 Virus has unnerved markets globally, due to what is known as an economic shock, depending on the asset, commodity or otherwise.  The China consumption/investment engine has crunched down to almost a complete stop, under the weight of an epidemic and now pandemic of a deadly respiratory virus that has spread extremely fast around the world since it was discovered in late 2019. 

Supply shocks to the economy can be narrowed down to specifics, the large major shock occurred in 1979 with the oil crisis and Middle East/Iran tensions when the price of oil spiked, as supply tightened, which in turn causes industries to adjust their profit margins on increased overheads and expenditures, thus leading to a laying off of staff, as the costs of running a company begins to increase.  Over the course of two decades of economic expansion which has been achieved through several key aspects; low interest via central banks, increase money supply and the buying of government debt.  Whilst devaluing currencies, such as the US Dollar, so that its demand has been crimped and liquidity being plentiful.  Which in turn has assisted in creating an over invested financial landscape that is mostly dependant on the cheaper imports and consumption from China, with Western and American off shore investment being maximised into the Chinese industries. 

However, the US stock market have been the most overvalued since 1964, more so the S&P 500 via the median piece to earning ratio, between a profitable company and unprofitable company by over 30%. Which means that future expectations of earnings has been over inflated, as mentioned, via the ambitions expansion and investment – which can be attuned to the readily available supply of low interest credit, but, more the global dependency on China and China's need for Western investors.  And now the consumption engine of the world has suddenly stopped.  Hence the financial markets panicking.