Virus fears: Dow drops 7.8%, oil sees free-fall
The Dow Jones Industrial Average tumbled 7.8% Monday, its steepest drop since the financial crisis of 2008, as mounting fears over the coronavirus combined with a crash in oil prices to send a shudder through world markets.
The drop on Wall Street was so sharp that it triggered the first automatic halt in trading in more than two decades. European markets likewise registered their heaviest losses since the darkest days of the 2008 meltdown and are now in a bear market.
Together, the damage reflecting mounting alarm over the coronavirus epidemic that has closed factories, schools and stores and led to travel bans and unprecedented quarantines.
“The market has had a crisis of confidence,” said Willie Delwiche, investment strategist at Baird.
U.S. stocks are now down 19% from the peak they reached last month. Bond yields fell to all-time lows as investors sought safer places to put their money, even if the returns on their investment slid ever close to zero.
The market slide came as Italy, the hardest-hit place in Europe, began enforcing a lockdown against 16 million people in the north, or one-quarter of the country’s population, with masked police officers and soldiers checking travelers’ documents amid restrictions that affected such daily activities as enjoying a espresso at a cafe or running to the grocery store. The turmoil is expected to push Italy into recession and weigh on the European economy.
Elsewhere around the world, Ireland went so far as to cancel St. Patrick’s Day parades, and Israel ordered all visitors quarantined just weeks before Passover and Easter, one of the busiest travel periods of the year.
In the U.S., a cruise ship with a cluster of coronavirus cases that forced it to idle off the California coast for days arrived at the port of Oakland as officials prepared to start bringing passengers to military bases for quarantine or get them back to their home countries. The Grand Princess had more than 3,500 people aboard — 21 of them infected with the virus.
The escalating health crisis combined with another, intertwined development — plummeting oil prices — to drag down the market: The price of oil sank nearly 25% after Russia refused to roll back production in response to virus-depressed demand and Saudi Arabia signaled it will ramp up its own output.
While low oil prices can translate into cheaper gasoline, they wreak havoc on energy companies and countries that count on petroleum revenue, including the No. 1 producer, the U.S.
On Wall Street, the S&P 500 plunged 7.4% in the first few minutes after the opening bell before trading was halted by the market’s circuit breakers, first adopted after the crash of October 1987 and modified over the years to give investors a chance to catch their breath. The market-wide circuit breakers have been triggered only once before, in 1997.
After the 15-minute pause, the S&P trimmed its losses, but still closed 7.6% lower on the day. The Dow fell 2,013 points, or 7.8%, to 23,851.02. The Nasdaq gave up 7.3%.
The slide pushed U.S. stocks ever closer to a bear market, defined as a drop of 20% from its peak, while a gauge of fear on Wall Street reached its highest level since the 2008 global financial crisis.
Italy’s stock index plunged 11.2%. Britain, France and Germany were down between 7.7% and
8.4%
The interest rate, or yield, on U.S. Treasury bonds sank to all-time lows as investors looking for a safe place kept on sinking money into them, even as the return on their investment sank closer and closer to zero. The yield on the 10-year Treasury note plunged to 0.59%. Up until last week, it had never been below 1%.
The carnage in the energy sector was particularly bad. With benchmark U.S. crude dropping to under $32 a barrel, Marathon Oil, Apache Corp. and Diamondback Energy each sank more than 40%. Exxon Mobil and Chevron were on track for their worst days since 2008.
“We knew it was going to be a hot day,” said John Spensieri, head of U.S. equity trading at Stifel. He said that the mood was “organized chaos” in the morning but that the trading halt achieved what it was supposed to by stopping the slide.
The coronavirus has infected more than 110,000 people worldwide and killed around 3,900, leading to factory shutdowns, travel bans, closings of schools and stores, and cancellations of conventions and other gatherings. In the U.S., the number of people infected climbed to around 600, with at least 26 deaths — at least 19 of them associated with a single Seattlearea nursing home.