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Stocks Tumble Again as Fears of Coronavirus Grip Markets Stocks Slide for 2nd Day as U.S. Sounds Alarm on Coronavirus
(about 3 hours later)
Worried investors continued to dump stocks Tuesday in response to the threat of the spreading coronavirus outbreak, as American officials warned that it was only a matter of time before the infection spreads to the United States. Worried investors dumped stocks again Tuesday as American officials warned that it was only a matter of time before the coronavirus outbreak spreads to the United States.
A day after its worst one-day slide in two years, the S&P 500 was down about 3 percent by Tuesday afternoon, a decline that put the blue chip index firmly in the red for the year. A day after its worst one-day slide in two years, the S&P 500 closed down 3 percent on Tuesday, a decline that put the index deeper in the red for 2020.
For weeks, American investors had largely shrugged off the economic risks of the virus even as it disrupted global supply chains and shut down factories in China. As recently as last Wednesday, the S&P 500 was at a record high. But since then, growing outbreaks in Europe and elsewhere in Asia have raised fears that the virus will continue to drag on the global economy. “At this point the market is resigning itself to the fact that the impact of the coronavirus is going to be well beyond China and the first quarter of 2020,” said Yousef Abbasi, global market strategist at INTL FCStone, a financial services and brokerage firm.
Monday was the worst day for American markets since February 2018, with the S&P 500 falling 3.4 percent after officials in Italy and South Korea reported new infections. Since the outbreak first emerged in January, the primary concern among economists and investors has been how a temporary paralysis of the Chinese economy — the world’s second largest — would affect global supply chains. For weeks, American investors paid little mind: As recently as last Wednesday, the S&P 500 was at a record high.
On Tuesday, the tumble continued. Declines in the S&P 500 were led by energy, industrial and materials shares, sectors of the market closely tied to Chinese demand for raw materials. But since then, growing outbreaks in Europe and elsewhere in Asia — and a warning from health officials about the potential risks to the United States — have raised fears that the virus will threaten the nations that serve as key customers for almost everything the global economy produces.
“When you start to impact Western Europe and when you start to impact the United States, now you’re impacting the global economy way more significantly because you’re impacting these demand markets,” Mr. Abbasi said.
Monday was the worst day for American markets since February 2018, with the S&P 500 falling 3.4 percent after officials in Italy and South Korea reported new infections, and the tumble continued Tuesday. Declines in the S&P 500 were led by energy, industrial and materials shares, sectors of the market closely tied to Chinese demand for raw materials.
Updated Feb. 25, 2020Updated Feb. 25, 2020
The sell-off accelerated after the Centers for Disease Control and Prevention warned Americans that they should brace for the likelihood that the coronavirus will spread to communities in the United States.The sell-off accelerated after the Centers for Disease Control and Prevention warned Americans that they should brace for the likelihood that the coronavirus will spread to communities in the United States.
“It’s not so much of a question of if this will happen in this country any more, but a question of when this will happen,” said Dr. Nancy Messonnier, director of the National Center for Immunization and Respiratory Diseases. “We are asking the American public to prepare for the expectation that this might be bad.” “It’s not so much of a question of if this will happen in this country anymore, but a question of when this will happen,” said Dr. Nancy Messonnier, director of the National Center for Immunization and Respiratory Diseases. “We are asking the American public to prepare for the expectation that this might be bad.”
As stocks dropped sharply, investors moved into the safety of government bonds, pushing their prices up and yields down. The yield on the 10-year Treasury note fell to a record low, a signal that investors expect growth in the United States to slow. Investors moved into the safety of government bonds, pushing their prices up and yields down. The yield on the 10-year Treasury note closed at a record low of 1.335 percent and the 30-year bond also dropped to a record of 1.81 percent — two signals that investors expect growth in the United States to slow.
Investors could face more wild rides as the coronavirus outbreak spreads further, crimping consumer demand and snarling the world’s supply chains. “The rate at which people are buying, particularly long-end interest rate products, is extraordinary,” said Rick Rieder, chief investment officer of global fixed income at BlackRock.
“The emergence of a large number of new cases in Italy has materially increased the risk of a sharp drop in consumer and business confidence in Europe, and potentially North America too if more cases are confirmed there in the coming days,” Mark Haefele, the chief investment officer at UBS’s global wealth management operations, said in an investment report. The virus may merely be a catalyst for an overdue sell-off, some analysts said.
The growing outbreaks of the virus in Europe, Asia and the Middle East have stoked fears that its spread will be difficult to contain, and market analysts in recent days have issued new warnings that the outbreak could drag down economies around the globe. The S&P 500 rose 17 percent between early October, when the market first caught wind that the Trump administration was close to an interim trade deal with China, and last Wednesday, when it closed at a record high. At the same time, forecasts for this year’s corporate earnings — the lodestar for forward-looking stock market investors — have been falling.
Economists at JPMorgan Chase wrote that they expected global growth to slow to a 1 percent annual pace in the first three months of the year, which would be the weakest quarter of the economic expansion that is now more than a decade long. In the United States, the general estimate for first-quarter domestic growth has slipped. The combination of higher stock prices and lower expected earnings made stocks look increasingly overpriced according to widely used metrics, such as price-to-earnings ratios. This month, the S&P 500 reached a price-to-earnings ratio of 19 times the next 12 months’ expected earnings, the highest level since May 2002.
Markets around the globe have been affected this week. A high ratio is precarious: Even slight changes in profit expectations can result in big price swings.
Germany’s DAX and Britain’s FTSE 100 each fell nearly 2 percent on Tuesday, a day after European markets had their worst drop since 2016. “It really requires everything to go well,” said Stephen Gallagher, chief U.S. economist for Société Générale. Now, he said, the market is “entering a period where we’re seeing valuations adjust very abruptly.”
Shares also fell in most markets in Asia, led by Japan, which was closed for a holiday on Monday. The Nikkei 225 index tumbled more than 3.3 percent on Tuesday, although most other Asian markets fell at a much slower pace. While jarring, the jolt the market has suffered so far isn’t extreme. The S&P 500 was down about 7.6 percent from its recent record high at the end of Tuesday’s trading day.
South Korea, which is facing the world’s second-largest outbreak of the virus outside China, was the bright spot: Share prices rebounded on Tuesday morning after enduring one of the sharpest drops of any large market around the world the day before. They ended up 1.2 percent. Still, the slump is already raising expectations that the Federal Reserve could take action to lower interest rates if the sell-off deepens.
Stock markets in commodity-exporting countries continued to suffer losses as traders worry that demand for their goods may decline if more countries suffer the kind of bruising deceleration in economic activity that China has endured. Australia’s stock market fell 1.6 percent on Tuesday. In comments on Tuesday, Vice Chairman Richard H. Clarida signaled that Fed was not yet ready to act, though it is monitoring economic developments related to the virus.
The price of a barrel of benchmark American crude oil also dropped. Oil prices have dropped about 17 percent this year, as investors have anticipated the weekslong immobilization of China’s economy, the world’s second largest. But in recent days, the market-based probability — derived from prices in the Fed funds futures market — of a rate cut at the Fed’s April meeting jumped to over 60 percent, according to data from CME. Last Wednesday, when markets were at record highs, the market was putting odds of a cut at the April meeting at less than 25 percent.
China consumes more crude and commodities than any other country. Prices of those commodities have also fallen, dragging down the share prices of mining, chemical and fertilizer companies. Markets have come to rely on the Fed to step in during periods of extreme stress. In late 2018, after a nearly 20 percent tumble in stocks, the Fed backed away from its plan to continue raising rates. Instead, it cut rates three times in 2019, which helped supercharge almost every form of financial asset and sent the S&P 500 up 28.9 percent for the year.
Keith Bradsher and Jeanna Smialek contributed reporting. Growing expectations of rate cuts could help explain the sharp decline in bond yields in recent days, said Scott Mather, chief investment officer of U.S. Core Strategies at Pimco. Investors may be flocking to short-term government debt in the expectation that lower rates from the Fed will raise the value of their holdings.
“I think that you’ll hear more about that from the Fed in coming days, certainly if we have a couple more days like this,” Mr. Mather said.
Jeanna Smialek contributed reporting.