Stocks drop sharply as virus spreads
A sharp rise in coronavirus cases outside of China jolted global financial markets Monday, reviving concerns about the potential economic fallout from the outbreak.
The Dow Jones industrial average plunged 1,031.61 points, or 3.6%, to close at 27,960.80, its biggest one-day drop since February 2018, when inflation fears rattled investors. The Standard & Poor’s 500 slid 3.4% to end at 3,225.89, but is still sitting within about 5% of its record high on Wednesday. The technology-heavy Nasdaq Composite shed 3.7% to end at 9,221.28.
Stocks were pummeled after South Korea reported 231 new cases of the deadly virus Monday, bringing the country’s total to 833. China reported 409 new cases, raising the mainland’s total to 77,150. The 150 new deaths from the illness raised China’s total to 2,592. Elsewhere, a surge in reports of new cases in Iran and Italy raised the prospect of more disruptions.
“Many investors remain complacent about the far-reaching impact of coronavirus, which is continuing to spread – and at a faster pace,” Nigel Green, chief executive and founder of financial consultancy deVere Group, said in a note. “This will inevitably hit financial markets, and investors’ complacency leaves many wide open to nasty surprises.”
Monday’s decline battered stocks across most industries, from airlines to technology companies to large financial firms. The sharp drop comes just days after stocks rallied to all-time highs, signaling a potential shift in sentiment as investors sought safety in havens like gold and U.S. bonds.
The latest developments raised fresh worries that the outbreak could threaten to derail global growth. Investors fear that production delays in China due to the virus could force multinational companies to cut their earnings outlooks.
Diane Swonk, chief economist at Grant Thornton, said the spread of the coronavirus is prompting her to increase her estimate of the outbreak’s impact on U.S. economic growth in the first half of the year. She previously forecast the virus would cut growth by three-tenths of a percentage point in the first quarter but now says the impact could be about half a percentage point, though she hasn’t completed her analysis.
“It’s causing an economic pandemic,” she says. “We have a global reaction that’s literally shutting down businesses.”
Expectations have climbed among traders that the Federal Reserve will cut interest rates this year to help cushion the U.S. economy. Fed-funds futures, used by investors to place bets on the course of the central bank’s policy, showed 90% of the market on Monday priced in at least one rate cut this year, up from a 58% probability a month ago, according to data from CME Group.
But the virus is hurting supply for companies, not demand, according to Tim Bray, senior portfolio manager at GuideStone Capital Management.
“No matter how much the Fed cuts rates, auto manufactures and other similar industries can’t suddenly produce supplies and inventories if factories are shut down,” Bray said.