Stock market has its worst day in 2 years
WALL STREET- Stock markets were slammed on Monday with investors unnerved by rising coronavirus concerns.
The relentless spread and widening economic impact of the coronavirus now threatens havoc on a global scale.
The Dow Jones industrial average sank by more than 1,000 points or 3.5 percent, to close at 27,961.01 as Wall Street interpreted disease clusters in South Korea, Italy, and Iran as a sign that the respiratory illness has outraced confinement efforts in China. The technology-heavy Nasdaq index sank by more than 3.7 percent.
Factories around the world are grappling with parts shortages as their Chinese suppliers struggle to resume normal operations. The Federal Reserve and other central banks are facing calls for emergency help as global economic engines sputter.
Interest rates are already in negative territory in Europe and near historic lows in the United States, making it even more difficult for central bank chiefs to battle the economic consequences of the flu-like illness.
“There’s just growing angst in the investor community that this thing is more serious than we realized,” said Chris Meekins, an analyst with Raymond James and former Trump administration preparedness official. “When you’re worried about catching a disease, you’re not going to go out to dinner; you’re not going to go to the movies or sporting events or concerts. The only question is how widespread this becomes.”
Investors on Monday rushed into traditional safe havens, sending the price of gold soaring as government bond yields, which move opposite prices, plumbed new depths. After weeks of playing down the likely impact outside China, oil also fell into bear market territory amid expectations of prolonged global weakness.
“It may not be an actual pandemic yet, but it’s an economic pandemic,” said Diane Swonk, chief economist for Grant Thornton. “It’s global in scope and disrupting activity around the world.”
Monday’s markets action showed the rapid evolution of the coronavirus from a limited threat to supply chains into an across-the-board tightening of financial conditions, said Gregory Daco, chief U.S. economist for Oxford Economics. A spike in volatility may prompt businesses to hit the pause button on planned investments. And as nervous global investors sought safety in U.S. assets, they pushed up the value of the U.S. dollar.
That will make imported goods for American consumers less expensive, chilling inflation and leaving the Fed farther from hitting its goal of 2 percent annual price increases, which the central bank sees as a sign of a healthy economy. As a result, some investors now expect the Fed to cut rates to counteract some of the economic weaknesses.
“The Fed can’t eliminate all the risks on its own,” said Daco. “What the Fed can do it prevent a worsening of the situation.”
Gold, a safehaven in times of turmoil, climbed 1.6 percent to $1,675 an ounce. Brent crude, the global benchmark, skidded 5.4 percent on worries the outbreak will subdue demand for months to come. China is the world’s largest energy consumer, but it has been buying less crude amid virus-related travel restrictions. Meanwhile, major oil producers have yet to reach a deal on emergency measures to scale back output. The drop in oil prices will ramp up pressure on OPEC — the Organization of the Petroleum Exporting Countries — and Russia to reduce oil supplies at an upcoming meeting in March.
U.S. stock markets ended in decline last week, with the tech-heavy Nasdaq shedding 1.79 percent on Friday. Technology stocks like Apple, Amazon, and Google parent Alphabet were hit particularly hard.
Meanwhile, the yield on the 30-year Treasury fell to an all-time low, suggesting investor confidence in the economy was on shaky ground.
Michael Farr, president of Farr, Miller & Washington, said that the Federal Reserve’s ability to tackle the economic turmoil “is very limited.” A reduction in U.S. rates won’t address the supply problem coming out of Asia, Farr said, or reopen shuttered schools and factories.
“The risk isn’t so much morbidity and mortality, but it is the risk of business slowdown and perhaps even recession, Farr said.
Still, some say it was only a matter of time before global markets reacted sharply, and all at once, to the outbreak.
“The bond market had been signaling danger while the stock market has been blithely climbing the wall of worry,” said Nancy Tengler, chief investment officer of Laffer Tengler Investments. “We expected a much stronger correction on the initial coronavirus news — stocks are due for a pullback, after all. If we get a proper correction as the virus spreads, we think this will be constructive for stocks in the long-run.”