U.S. stocks take historic dive: ‘Emotion is now driving markets’

U.S. stocks tumbled, with benchmark gauges posting their worst drop since 1987, as investors signalled the Federal Reserve’s extraordinary bond-buying measures and Donald Trump’s economic proposals won’t be enough to counter the economic impact from the novel coronavirus.

All three major U.S. equity gauges fell more than nine per cent, with the Dow Jones Industrial Average and S&P 500 losing the most since Black Monday more than three decades ago.

The stock rout was worldwide, with Europe’s benchmark index down 11 per cent in a record drop. Brazil’s Ibovespa tumbled as much as 20 per cent at one point, extending this year’s loss to almost 50 per cent in dollar terms.

Ten-year Treasury yields erased declines and inched higher as policy-makers’ pledge of US$1.5 trillion in liquidity recalled the quantitative easing used during the financial crisis.

Oil and precious metals fell, with palladium entering a bear market as it tumbled more than 20 per cent Thursday.

The S&P 500 entered a bear market, wiping out all its gains since the end of 2018.

Now investors are trying to guess at the effectiveness of policy-makers’ measures to curb the spread of the coronavirus and limit its economic damage.

Trump’s travel ban and tepid fiscal measures failed to impress most observers. Spirits were further damped by new bans on public gatherings in the U.S. and professional sports leagues’ move to suspend operations.

“Markets likely need more. More innovation from central banks, more targeted help for the most vulnerable parts of the economy — and action from fiscal authorities to stop this transitory shock from developing into a more prolonged insolvency crisis,” said Seema Shah, a global investment strategist for Principal Global Investors.

“Emotion is now driving markets.”