Dow Jones sinks due to fears over coronavirus outbreak
The Dow Jones Industrial Average sank nearly 1,200 points on Thursday, deepening a week-long global market rout caused by worries that the coronavirus outbreak will wreak havoc on the global economy.
Bond prices soared again, sending the yield on the 10-year Treasury to another record low.
When yields fall it is a sign that investors are feeling less confident about the strength of the economy going forward.
“People can demand things that feel safe for irrational amounts of time,” said Katy Kaminski, chief research strategist at AlphaSimplex Group. “It doesn’t matter, the fundamentals, when people are worried.”
The latest losses extended a slide in stocks that has wiped out the solid gains the major indexes had posted early this year.
The S&P 500 is now 12% below the all-time high it set just a week ago. This is now the stock market’s worst week since October 2008, when Wall Street was mired in the financial crisis.
Investors came into 2020 feeling confident that the Federal Reserve would keep interest rates at low levels and the U.S.-China trade war posed less of a threat to company profits after the two sides reached a preliminary agreement in January.
The virus outbreak has upended that rosy scenario as economists lower their expectations for economic growth and companies warn of a hit to their business.
The S&P 500 index’s sharp decline from its last record high puts it in what market watchers call a “correction” – a normal phenomenon that analysts have said was long overdue in this bull market, which is the longest in history.
Microsoft warned that the virus outbreak had interrupted its supply lines and would hurt its financial performance, following a similar warning last week from Apple.
The two stocks led another sell-off among technology companies. Energy stocks fell sharply as the price of oil dropped 3.4%.
“This is a market that’s being driven completely by fear,” said Elaine Stokes, portfolio manager at Loomis Sayles, with market movements following the classic characteristics of a fear trade – stocks are down, commodities are down and bonds are up.
Ms Stokes said the swoon reminded her of the market’s reaction following the September 11 2001 terrorist attacks.
“Eventually we’re going to get to a place where this fear, it’s something that we get used to living with, the same way we got used to living with the threat of living with terrorism,” she said.
“But right now, people don’t know how or when we’re going to get there, and what people do in that situation is to retrench.”
The S&P 500 fell 137.63 points, or 4.4%, to 2,978.76, its biggest one-day drop since 2011.
The Dow fell 1,190.95 points, or 4.4%, to 25,766.64. The Nasdaq dropped 414.29 points, or 4.6%, to 8,566.48. The Russell 2000 index of smaller company stocks lost 54.89 points, or 3.5%, to 1,497.87.
The virus has now infected more than 82,000 people globally and is worrying governments with its rapid spread beyond the epicentre of China.
Japan will close schools nationwide to help control the spread of the new virus.
Saudi Arabia banned foreign pilgrims from entering the kingdom to visit Islam’s holiest sites. Italy has become the centre of the outbreak in Europe, with the spread threatening the financial and industrial centres of that nation.
At their heart, stock prices rise and fall with the profits that companies make and Wall Street’s expectations for profit growth are sliding away.
Apple and Microsoft, two of the world’s biggest companies, have already said their sales this quarter will feel the economic effects of the virus.
Goldman Sachs on Thursday said earnings for companies in the S&P 500 index might not grow at all this year, after predicting earlier that they would grow 5.5%. Strategist David Kostin also cut his growth forecast for earnings next year.
Besides a sharply weaker Chinese economy in the first quarter of this year, he sees lower demand for US exporters, disruptions to supply chains and general uncertainty eating away at earnings growth.