Stocks tumble, investors dash for cash amid recession fears
NEW YORK – Stocks tumbled more than 5% on Wall Street on Wednesday, and the Dow erased virtually all its gains since President Donald Trump’s 2017 inauguration. Even prices for investments seen as safe during downturns fell as the coronavirus outbreak chokes the economy and investors rush to raise cash.
Markets have been incredibly volatile for weeks as Wall Street and the White House acknowledge the rising likelihood that the pandemic will cause a recession. The typical day this month has seen the stock market swing up or down by 4.9%. Over the last decade, it was just 0.4%.
It was just a day before that the Dow surged more than 5% after Trump promised massive aid to the economy, but the number of infections keeps climbing, and the Dow erased all but 0.4% of its gain since Trump’s inauguration. The S&P 500, which dictates how 401(k) accounts perform much more than the Dow, is down 29.2% from its record set last month, though it’s still up 12.1% since Election Day 2016.
The S&P 500’s slide was so sharp that trading was halted for 15 minutes Wednesday.
The S&P 500 index fell 131.09 points, or 5.2%, to 2,398.10. The Dow Jones Industrial Average fell 1,338.46 points, or 6.3%, to 19,898.92. The Nasdaq fell 344.94 points, or 4.7%, to 6,989.84. The Russell 2000 index of smaller company stocks fell 115.34 points, or 10.4%, to 991.16.
“The volatility is going to be here to stay,” said Brian Nick, chief investment strategist at Nuveen. “It’s about the virus and not the economic response.”
Wednesday’s selling swept markets around the world. Benchmark U.S. oil fell 24% and dropped below $21 per barrel for the first time since 2002. European stock indexes lost more than 4% following broad losses in Asia. Even prices for longer-term U.S. Treasurys, which are seen as some of the safest possible investments, fell as investors sold what they could to raise cash. Gold also fell.
“They’re just saying, ‘I may take some losses here, but if we have cash we can deploy it when we know more,’ ” said J.J. Kinahan, chief strategist with TD Ameritrade. “The problem for the market really is we just don’t know anymore. And until we really know where things are at, you may see people who just want to have as much cash as possible.”
The bond market is also operating under strain, and it hasn’t been this difficult for buyers to find sellers at reasonable prices since the financial crisis of 2008, said Gene Tannuzzo, deputy global head of fixed income at Columbia Threadneedle Investments.
Investors are selling their highestquality bonds to raise cash, thinking they will be the easiest to sell and will hold up the best. That’s paradoxically undercutting their prices further.
“These are truly unprecedented events with no adequate historical example with which to precisely anchor our forecast,” Deutsche Bank economists wrote in a report Wednesday.