NEW YORK — The spreading coronavirus and a plunge in oil prices set off a chain reaction in financial markets on Monday, a self-perpetuating downward cycle that could inflict serious harm on the global economy.
What started last month as unease about a potential economic slowdown in China has evolved into a borderline panic, with the S&P 500 crashing nearly 8 percent on Monday. The mayhem is threatening to roil the underlying global financial system and the abilities of companies large and small to survive a potential economic monsoon — a downward spiral that is fed and intensified by these destructive forces.
The odds of such a storm grew after an unexpected fight between Russia and Saudi Arabia. After failing to reach an agreement about how much oil to produce and sell on international markets, Saudi Arabia announced it would quickly ramp up production.
Oil prices had been falling as investors fretted about a possible recession. On Monday, those prices plummeted more than 20 percent — the sharpest decline since the first Persian Gulf War.
The S&P 500 has tumbled 19 percent during the past few weeks. The free fall has vaporized more than $5 trillion in stock market wealth.
By the end of the day, the Dow Jones industrial average had fallen more than 2,000 points.
Monday’s drop was its worst one-day percent decline in the United States since December 2008, when the country was still reeling from the collapse of Lehman Bros. and the housing crisis, which dragged the economy into a recession.
Less than 10 minutes after markets opened in the United States on Monday morning, the sell-off became so steep that automatic “circuit breakers” kicked in and halted trading. It was the first time that had happened since the current circuit breakers were set in 2013. The S&P’s 7.6 percent drop came on the 11th anniversary of the start of the current bull market, one of the longest ever. A 20 percent drop from the high point would signal what’s known as a bear market, a marker the S&P 500 has only narrowly avoided for now.
The public health crisis is now threatening to turn into a financial one, which in turn could amplify the virus’ economic fallout.
“There’s panic,” said Dan Krieter, an analyst at BMO Capital Markets. “We’re heading into what looks to be a global recession, including the US.”
President Trump told reporters at a White House coronavirus briefing on Monday evening that “we are going to take care of and have been taking care of the American public.” He said he would meet with Senate leaders on Tuesday to discuss a payroll tax cut and help for hourly wage earners.
In addition, the coronavirus outbreak continued to spread at a rapid clip, with more than 113,000 cases reported worldwide, prompting Italy and Israel to take extreme new quarantine measures Monday. The director of the World Health Organization called the threat of a coronavirus pandemic ‘‘very real.’’
The US tally of known cases of Covid-19, the illness caused by the coronavirus, has passed 600, spanning 30 states. The growing outbreak has wreaked havoc on the travel and tourism industry and has disrupted supply chains, from cars to smartphones.
As fear spread around the world, Italy’s premier, Giuseppe Conte, put the entire country on lockdown Monday to combat the coronavirus, banning all but the most important travel and ordering an end to social gatherings.
The only travel allowed for the 60 million Italians will be for proven work reasons, for health conditions, or other cases of necessity.
“Our habits must be changed, changed now,” Conte said.
The downward economic cycle — there are signs it is underway — might play out like this: As the virus disrupts manufacturing supply chains as well as travel, consumer spending would fall and businesses would falter, and stock prices would plummet. The threat to corporate profits would send investors in search of havens including government bonds, sending those prices up and their yields down, in turn straining the banking industry. Banks would limit financing for businesses, which would cut production or lay off workers to hoard capital.
Already, investors have hustled to safety, shunning corporate bonds and driving up the financing costs for many companies. And as they piled into US government bonds, long-term interest rates fell to historic lows; benchmark 10-year Treasury bonds, whose interest rates until last week had never sunk below 1 percent, were recently yielding half that.
Hoping to forestall that spiral, the Federal Reserve on Monday said it would increase the volume of short-term loans available to banks to make it easier for them to continue lending. It was the second time in a week — after an emergency interest-rate cut last Tuesday — that the Fed had moved to stem fallout as the coronavirus sent markets gyrating.
It is possible, of course, that investors’ gloom will prove to be overblown.
At some point, for example, the coronavirus is likely to stop spreading; it already appears to be easing in China and South Korea. If that happens soon, any economic damage from closed factories and canceled conferences and restricted travel may prove fleeting.
Perhaps Russia and Saudi Arabia will quickly reach an agreement. And until they do, there is a silver lining to rock-bottom oil prices: The resulting cheap fuel will be a boon to consumers and to industries like trucking and airlines.
And even after the decline on Monday, the S&P is up 140 percent over the last 10 years.
In addition, low interest rates are good for people who own or are looking to buy a home. A mortgage refinancing boom is underway, and many borrowers will pocket substantial monthly savings.
“This is a temporary headwind to the economy,” said Rick Rieder, chief investment officer of global fixed income at BlackRock. “It’s temporary, but it’s a tornadolike headwind, so it’s going to be powerful for a period of time.”
Material from the Associated Press and the Washington Post was used in this report.