Stock market indices tumble
3% drop attributed to virus outbreak fears
The stock market rally took a step backward on Monday as the coronavirus broadened its reach over the weekend to Italy and South Korea, causing investors to rethink what impact the spread of the disease might have on the overall economy.
The Dow Jones industrial Average sank more than 1,000 points. The drop was the worst for the index in two years and wiped out its gains so far in 2020.
The market up until last week had mostly shrugged off the threat of the disease in light of favorable interest rates and a strong U.S. economy. But major stock market indices tumbled more than 3% as investors began to fear the situation may be more serious than previously thought.
The Dow ended the day at 27,960, losing 3.56%. The S&P 500 closed at 3,225, down 3.35%. The Nasdaq fell 355, or 3.7%, to 9,221.
And the tumult didn’t stop at the U.S. border. Investors across the globe were trying to price in how the spread of the disease will affect the economy, said David Root, CEO of Downtown-based DBR & Co.
“Getting imported goods from China has stopped or will be impaired,” Mr. Root said. “The key to the stock market staying in good health and providing good returns is a strong economy.”
He said some investors may even be wondering if the coronavirus epidemic could be the catalyst that leads to a U.S. recession. He is not one of them.
“Now is not a time to panic,” Mr. Root said. “Now is the time to be constructing your buy list given this panic.”
Nationally, nervous investors scrambled for safety, loading up on gold, U.S. government bonds and other safe-harbor assets. The price of oil fell sharply on expectations that demand for energy would tumble.
More than 79,000 people worldwide have been infected by the new coronavirus. China, where the virus originated, still has the majority of cases and deaths. The rapid spread to other countries is raising anxiety about the threat the outbreak poses to the global economy.
South Korea is now on its highest alert for infectious diseases after cases there spiked. Italy reported a sharp rise in cases, and a dozen towns in the northern, more industrial part of that country are under quarantine. The nation now has the biggest outbreak in Europe, prompting officials to cancel Venice’s famed Carnival, along with soccer matches and other public gatherings.
There are also more cases of the virus being reported in the Middle
East as it spreads to Iran, Iraq and Kuwait, among others.
Germany’s DAX slid 4% and Italy’s benchmark index dropped 5.4%. South Korea’s Kospi shed 3.9% and markets in Asia fell broadly.
Investors looking for safe harbors bid up prices for U.S. government bonds and gold. The yield on the 10-year Treasury note fell sharply, to 1.38% from 1.47% late Friday. Gold prices jumped 1.7%, while crude oil prices slid 3.7%.
While a sell-off had taken hold of Wall Street, Pittsburgh financial advisers reported phone lines at their offices were relatively quiet.
“We are more of a longterm planning firm,” said P.J. DiNuzzo, president and chief investment officer at DiNuzzo Private Wealth in Beaver. “Everything we do is long term. Our clients’ financial wellness life plan would not be affected by the current volatility we are experiencing.”
Mr. DiNuzzo said he has been anticipating some volatility.
“The market has been in a position to experience a correction of 10% or more due to the extended run-up,” he said, “especially due to the run-up in the last 14 months.”
Paul Brahim, CEO of BPU Investment Management, Downtown, said the stock market remains in positive territory on a 12-month basis. One year ago the S&P 500 stood at 2,792. Monday it closed at 3,225.
Still, he said he has prepared his clients ahead of time for the likelihood of turbulence in the days to come.
“Corrections are part of the process,” Mr. Brahim said. “Markets look for a reason to correct and the coronavirus may have given the markets that reason.
“We have had declines that were brutal over the past 40 years, averaging losses of 13.8%” he said. “Still, we have had positive returns in 30 of the last 40 years.”