Dow falls 603 points over fears about virus
Stocks fell sharply on Wall Street Friday as fears spread through the markets that a virus outbreak emanating from China will dent global growth.
The Dow Jones industrial average skidded more than 600 points, and the S&P 500 index erased its gains for January.
Technology companies, which do a lot of business with China, led the losses. Airlines fell after Delta and American suspended flights to and from the country.
Just two weeks ago, the S&P 500 closed at an alltime high, having climbed around 13% since early October. A preliminary trade deal signed by the U.S. and China earlier in the month eased a big source of uncertainty in the markets. Volatility was running at 12-month lows and even a dust up between the U.S. and Iran didn’t rock markets.
Then came the coronavirus outbreak in China.
Markets around the globe have sold off on concerns about the potential economic impact of the outbreak. Hong Kong’s Hang
Seng fell 5.9% this week, while South Korea’s Kospi dropped 5.7%. Markets in Europe declined as well. The U.S. stock market, which had calmly been setting record after record, suffered its worst January since 2016 and its first monthly loss since August 2019.
China’s stock markets reopen Monday after being closed since Jan. 23 for the Lunar New Year. A lot of pent-up selling has likely built up in the meantime.
Some funds that try to mimic the movements of Chinese indexes are still trading in the United States and elsewhere. These exchange-traded funds, or ETFs, are moving on investors’ expectations for where Chinese stocks would be if markets in mainland China were still open. The Xtrackers Harvest CSI 300 China A-Shares ETF tracks an index of large stocks that trade in Shanghai and Shenzhen, for example. It’s down roughly 9% since Jan. 23.
The virus has infected almost 10,000 people in just two months, mostly in China. The World Health Organization has declared the outbreak a global emergency, a designation that signals that the virus is now a significant risk to other countries and requires a global response. The death toll Friday stood at 213, including 43 new fatalities, all in China.
“It seems like the equity market is now coming around to the realization that maybe this is something that may linger for some time,” said Sameer Samana, senior global market strategist at Wells Fargo Investment Institute.
American Airlines fell 3.2%, while and Delta Air Lines slipped 2.4%. Apple, which relies on Chinese consumers for sales and factories for supplies, fell 3.9%. Nvidia slid 3.8%, and other chipmakers also slipped.
Amazon was a rare bright spot in the market Friday. The online retailer surged 7.4% after blowing past
Wall Street’s fourth-quarter profit forecasts. The company said Prime membership exploded 50% since it last disclosed that figure in 2018.
The S&P 500 sank 58.14 points, or 1.8%, to 3,225.52. The Dow Jones industrials fell 603.41 points, or 2.1% to 28,256.03 The Nasdaq dropped 148 points, or 1.6%, to 9,150.94.
Economists are scrambling to calculate the virus’ impact on China’s economy. The Chinese economy is far bigger and more closely integrated with the rest of the world than it was at the time of the SARS outbreak 17 years ago. China now accounts for 16% of global economic output, up from 4% in 2003.
Ben May, director of global macro research at Oxford Economics, estimates the virus will shave 0.4 percentage points off Chinese economic growth this year, leaving it at 5.6%, the slowest since 1990, and reduce global growth by 0.2 percentage points to 2.3%, the weakest since the 200708 financial crisis.
Others expect a repeat of the SARS experience: a quarter or two of weaker Chinese growth followed by a quick and full recovery with limited fallout worldwide.
“History suggests that unless the end of the world is going to be caused by this flu-like virus, it will prove to be only a slight headwind for the global economy,” Carl Weinberg, chief economist at High Frequency Economics, wrote in a research report.