Virus crisis sends stocks on deep dive

Stocks tumbled around the world Monday as expanding outbreaks of the coronavirus in Italy and in South Korea forced investors to reconsider the seriousness of the threat to economies in Europe and the United States.

China’s economy has already been hamstrung by the outbreak, which has infected more than 77,000 people there and triggered quarantines that have closed factories. But rapidly spreading outbreaks elsewhere in Asia as well as Europe and the Middle East have begun to erode confidence that the virus will pass sooner rather than later.

“The coronavirus might be slowing in mainland China, but the huge jump over the weekend to various other countries has many reassessing 2020 growth

estimates,” Ryan Detrick, senior market strategist for LPL Financial, a money management firm, wrote in an email. He added: “We could see quickly decreasing earnings and growth outlooks.”

The S&P 500 fell more than 3.3%, its biggest daily decline since February 2018, while the Dow Jones industrial average fell more than 1,000 points.

European markets recorded their worst day since 2016, and major bench marks in Asia also closed sharply lower.

Investors have been jumpy since the start of the crisis in January because of the role that China’s factories play in global business.

Those factories are vital links in global supply chains, taking in shipments of raw materials and sending out everything from clothing to iPhones to auto parts. Hyundai, the world’s fifth-largest automaker, cited a shortage of Chinese-made parts when it temporarily stopped production lines earlier this month at factories in South Korea — and that was before a surge in coronavirus cases in that country put officials on high alert.

China is also a huge consumer market: When Apple cut its sales expectations for the quarter last week, it cited both production problems linked to the outbreak and reduced demand in the country, where it had closed dozens of stores.

Since the start of the outbreak,

the stock market’s reaction has been fairly restrained. The S&P 500 had continued to rise even after the World Health Organization declared coronavirus a global health emergency.

But the virus’s spread over the weekend has contributed to fears that the outbreak is reaching the point where it will drag on growth, including in the United States, where until now analysts had only whittled around the edges of expectations.

The consensus estimate for first-quarter growth in the United States has slipped from 1.7% at the end of 2019, to 1.5% on Monday, according to data from FactSet. Economists at Goldman Sachs, who were expecting first-quarter domestic growth of 2% as recently as late January, have been steadily lowering their estimate, which fell to 1.2% on Monday.

“The risks are clearly skewed to the downside until the outbreak is contained,” they wrote.

Monday’s drop across markets for stocks, bonds and commodities suggests that investors do not believe those somewhat muted forecasts are pessimistic enough.

In bond markets, yields tumbled, reflecting a sharp — if perhaps temporary — downgrade of expectations for economic growth and inflation.

The yield on the 10-year Treasury note fell to 1.37%, near the record low closing of 1.36%, a level touched in July 2016. The yield on the 30-year bond is already in record-low territory at

1.83%.

Crude oil prices dropped, with a barrel of West Texas Intermediate crude slipping nearly 4% to roughly $51. It was the sharpest drop for oil since early January. The lower prices will add to pressure on OPEC and Russia to take measures to reduce oil supplies at their next meeting, which is scheduled for early March in Vienna.

And gold — viewed as a safe place to invest during market tumult — rose to a seven-year high.

Airline and technology stocks were particularly hard hit. Delta Air Lines and American Airlines were down 6% and 8%. Shares of Apple fell more than 4%. The tech-heavy Nasdaq composite index dropped 3.7%.

In Europe, major benchmarks were down 3% or more. The South Korean market ended 3.9% lower, after a surge in virus cases prompted President Moon Jae-in on Sunday to put the country on its highest level of alert. Other Asian markets slid but not by as much.

Uncertainty about the potential effect of the virus remains the baseline setting for many investors, traders and analysts. In a note published Friday, economists at JPMorgan Chase wrote that they expected global growth to slow to 1% in the first quarter, amid a sharp contraction of manufacturing activity.

“While this would mark the weakest quarter of the expansion, these are still optimistic estimates with significant downside risk,” they wrote.