A BUMPY WEEK FOR STOCKS
Fears of virus spread send markets spiraling
The stock market experienced its worst week since the financial crisis of 2008 as worries about the coronavirus mounted and investors grew more concerned that the deadly outbreak could hamper corporate profits and economic growth.
In less than a week, all of the major U.S. stock market indexes have tumbled about 15% from their all-time high — reached earlier this month — into what is known as correction territory, which describes when a major stock market index such as the S&P 500 falls 10% or more from a recent closing high.
The Dow Jones Industrial Average on Friday shed 357 points, closing at 25,409. The S&P 500 closed at 2,954, holding its losses to less than 1%. Meanwhile, the Nasdaq composite held its ground, finishing in the green but with no gain for the day.
Global financial markets have been rattled by the virus outbreak that has been shutting down industrial centers, emptying shops and severely crimping travel. More companies are warning investors that their finances will take a hit because of disruptions to supply chains and sales. Governments are taking increasingly drastic measures as they scramble to contain the virus.
After stocks have had a historic period of uninterrupted gains for more than 10 years, the speed of decline this week took investors and Wall Street experts by surprise.
“It’s market participants attempting to price in the uncertainty associated with the known unknown that comes by way of the coronavirus outbreak,” said Mark Luschini, chief investment strategist at Janney Montgomery Scott in Downtown Pittsburgh.
“Investors — both professional and retail alike — are looking at this and trying to make sense of what it is and what it means for financial markets and what, if anything, to do about it,” he said.
The rout has knocked every major index into what market watchers call a “correction,” or a fall of 10% or more from a peak. The last time that occurred was in late 2018, as a tariff war with China was escalating.
Bond prices soared as investors sought safety and became more pessimistic about the economy’s prospects. That pushed yields to more record lows. The yield on the 10-year Treasury note fell sharply to 1.14% from 1.30% late Thursday. That’s a record low, according to TradeWeb. That yield is a benchmark for home mortgages and many other kinds of loans.
At this juncture, with the economy having been performing well, Mr. Luschini doesn’t believe the virus outbreak rises to the point of being an imminent risk to derailing it.
“But we have to recognize if this outbreak continues to grow by way of countries and in the U.S., particularly then it will begin to have a more severe economic impact and we would be inclined to turn more cautious,” he said.
As usual, when the economy is in trouble, all eyes turn to the Federal Reserve to get a sense of where things are headed.
Fed Chair Jerome Powell issued a short statement
Friday afternoon reaffirming that the central bank will use its tools and “act as appropriate to support the economy.”
Mr. Powell said the central bank is monitoring the coronavirus and pledged action if necessary.
The U.S. markets’ losses moderated Friday after the Fed statement. Investors increasingly expect the Fed to cut rates at its next policy meeting in mid-March.
A big concern investors have is that the stock market rout could have a psychological effect on consumers, making them reluctant to spend money and go to crowded places such as stores, restaurants and movie theaters.
The late 2018 stock market plunge, for instance, derailed holiday sales that year. Now, analysts are worried that the latest stock swoon could cause consumer spending — which makes up some 70% of the economy and has played a huge role in keeping the U.S. expansion going — to contract again.
While the U.S. has never experienced a virus outbreak big enough to affect the bottom lines of major corporations, reaction to the coronavirus suggests investors may be thinking this time might be different.
P.J. DiNuzzo, president and chief investment officer at DiNuzzo Private Wealth in Beaver, said emotions play a big role in stocks plummeting the way they did this week.
“It’s been a fluid situation and a violent collision of emotions and uncertainty conflating with downward GDP revisions for China and across the globe,” he said. “You have got all this uncertainty and emotions.”
He said if history is any guide, the stock market action early next week also is likely to be driven by emotion.
“With a highly volatile market entering into the weekend, the following Monday often provides a significant move to the upside or the downside,” Mr. DiNuzzo said. “On the weekends, people sit around and think and either they think, things are going to get better and they buy a lot, or it could go the other way.
“In my anticipation regarding this correction, we are closer to the end than the beginning.”