Stock market slide deepens on coronavirus fears
The Dow Jones Industrial Average sank nearly 1,200 points Thursday, deepening a weeklong global market rout caused by worries that the coronavirus outbreak will wreak havoc on the global economy.
Bond prices soared again, sending the yield on the 10year Treasury to another record low. When yields fall, it’s a sign that investors are feeling less confident about the strength of the economy going forward.
“People can demand things that feel safe for irrational amounts of time,” said Katy Kaminski, chief research strategist at AlphaSimplex Group. “It doesn’t matter, the fundamentals, when people are worried.”
The latest losses extended a slide in stocks that has wiped out the solid gains the major indexes had posted early this year.
The S&P 500 is now 12% below the all-time high it set just a week ago. This is now the stock market’s worst week since October 2008, when Wall Street was mired in the financial crisis.
Investors came into 2020 feeling confident that the Federal Reserve would keep interest rates at low levels and that the U.S.-China trade war posed less of a threat to company profits after the two sides reached a preliminary agreement in January. The virus outbreak has upended that rosy scenario as economists lower their expectations for economic growth and companies warn of a hit to their business.
The S&P 500’s sharp decline from its last record high puts it in what market watchers call a “correction,” a normal occurence that analysts have said was long overdue in this bull market, the longest in history.
Microsoft warned that the virus outbreak had interrupted its supply lines and would hurt its financial performance, following a similar warning last week from Apple. The two stocks led another sell-off among technology companies. Energy stocks fell sharply as the price of oil dropped 3.4%.
“This is a market that’s being driven completely by fear,” said Elaine Stokes, portfolio manager at Loomis Sayles, with market movements following the classic characteristics of a fear trade: stocks and commodities are down; bonds are up.
Ms. Stokes said the swoon reminded her of the market’s reaction following the 9/11 terrorist attacks.
The S&P 500 fell 137.63 points, or 4.4%, to 2,978.76, its biggest one-day drop since 2011.
The Dow fell 1,190.95 points, or 4.4%, to 25,766.64. The Nasdaq dropped 414.29 points, or 4.6%, to 8,566.48. The Russell 2000 index of smaller company stocks lost 54.89 points, or 3.5%, to 1,497.87.
At their heart, stock prices rise and fall with the profits that companies make. And Wall Street’s expectations for profit growth are sliding away. Apple and Microsoft, two of the world’s biggest companies, have already said their sales this quarter will feel the economic effects of the virus.
A handful of companies have managed to gain ground amid the chaos. Medical teleconferencing company Teladoc surged 15.7%, and 3M, which counts surgical masks among its many products, rose 0.8%.
The market’s sharp drop this week partly reflects increasing fears among many economists that the U.S. and global economies could take a bigger hit from the coronavirus than previously thought.
Earlier assumptions that the impact would largely be contained in China and would temporarily disrupt manufacturing supply chains have been overtaken by concerns that as the virus spreads, more people in numerous countries will stay home — either voluntarily or under quarantine. Vacations could be canceled, restaurant meals skipped and fewer shopping trips taken.
“A global recession is likely if COVID-19 becomes a pandemic, and the odds of that are uncomfortably high and rising with infections surging in Italy and Korea,” said Mark Zandi, chief economist at Moody’s Analytics.