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Coronavirus Drives Stocks Down for 6th Day and Into Correction Coronavirus Fears Drive Stocks Down for 6th Day and Into Correction
(about 4 hours later)
Global markets tumbled for a sixth consecutive day on Thursday, dragging down the S&P 500 more than 10 percent in just a week, reflecting rising fears over the coronavirus that is spreading quickly around the world. The global stock market slid for the sixth straight day on Thursday, as the S&P 500 index plunged to its worst loss in almost nine years and investors worldwide grew increasingly fearful that the coronavirus outbreak could cause a recession as it squeezes corporate profits.
The S&P 500 fell 4.4 percent on Thursday, the worst single day slide for the market since August 2011. The index is on pace for its worst weekly performance since the 2008 financial crisis. Stocks in Europe and Asia were also hard hit on Thursday. The S&P 500, which just last Wednesday reached a record high, slid 4.4 percent, its worst day since August 2011. The index is down 12 percent since that peak, entering what is known as a correction — a drop of at least 10 percent that signals a more significant sell-off than a few days of pessimistic trading.
The sell-off came after public health officials in the United States and Germany said new patients in each country had no known connection to others with the illness, a development that could complicate efforts to track the virus. Cases of the virus have appeared in at least 47 countries. The widening scope of the health crisis threatens to overwhelm global supply chains, especially in China, the world’s second-largest economy after the United States. In addition, the outbreak could crush consumer demand, as people limit travel or stay home even without a government order to do so.
The speed of the market slump has been stunning, with the S&P 500 falling more than 10 percent from its Feb. 19 high, a drop that Wall Street labels a correction to suggest the decline is more significant than a few days of downbeat trading. Scott Clemons, the chief investment strategist for private banking at Brown Brothers Harriman, said the outbreak’s potential to alter American consumers’ habits was at the heart of the sell-off.
The last time stocks in the United States fell that much was late 2018, when investors worried that the trade war and rising interest rates might tip the U.S. economy into a recession. The Dow Jones industrial average also fell into a correction on Thursday, as did shares in London. “To the degree that consumers change their behavior — so they stop going out to eat, they don’t take the vacation, they cancel the business trip — that consumption, that spending, personal consumption is 68 percent of G.D.P.,” Mr. Clemons said.
Over the past few days, companies as varied as United Airlines, Mastercard and Pfizer have said the outbreak poses a threat to their 2020 earnings.
On Wednesday night, President Trump directly addressed the outbreak, putting Vice President Mike Pence in charge of the government’s response and saying “we’re very, very ready for this.” While Mr. Trump acknowledged the potential economic fallout of the outbreak, he said woes at the aerospace giant Boeing, a strike last year at General Motors and the Fed’s reluctance to slash interest rates had done more to hurt the economy. And analysts at Goldman Sachs predicted on Thursday that companies in the S&P 500 would generate no profit growth this year as a result of the crisis, because of a “severe decline in Chinese economic activity,” disruption in the supply chain for American companies and a slowdown in the U.S. economy.
Updated Feb. 26, 2020Updated Feb. 26, 2020
But not long after his news conference, health officials reported that a person in Northern California had become sick despite not being exposed to anyone known to be infected with the coronavirus. Doctors said the patient had to wait days to be tested because of restrictive federal criteria. On Wednesday, President Trump addressed the outbreak, expressing confidence that the risk to the United States was low. But investors were clearly not convinced.
Officials around the world have struggled to contain the spread of the virus. Prime Minister Shinzo Abe on Thursday asked all of Japan’s schools to close for a month. The country joined China and Mongolia in shuttering schools nationwide over the epidemic. “When you get into a situation like this, it cascades, and that really becomes a problem,” said Steve Sosnick, chief strategist at Interactive Brokers in Greenwich, Conn.
Health officials in Germany reacted aggressively after a man with no known connection to anyone with the coronavirus tested positive. They closed schools in the community where he lived and reached out to hundreds of people who took part in a carnival celebration over the weekend where the man was also present, urging them to stay home for two weeks. As stocks were falling Thursday, other countries struggled to contain the outbreak.
Even if the United States doesn’t adopt such extreme measures, an outbreak could prompt a serious shift in consumer behavior, hitting the bedrock of the American economy. Prime Minister Shinzo Abe of Japan asked all of the country’s schools to close for a month. Health officials in Germany reacted aggressively after a man with no known connection to anyone infected with the coronavirus had tested positive, closing schools and urging some who may have come in contact with him to stay home for two weeks.
“To the degree that consumers change their behavior — so they stop going out to eat, they don’t take the vacation, they cancel the business trip — that consumption, that spending, personal consumption is 68 percent of G.D.P.,” said Scott Clemons, chief investment strategist at Brown Brothers Harriman. In Italy, the number of coronavirus cases rose to 14, and in France they more than doubled to 38. “We have before us a crisis, an epidemic that is coming,” said President Emmanuel Macron of France.
He added: “That moves it beyond the sphere of ‘people feel bad because their 401(k)s are down’ and into the sphere of economic reality.” In Europe, Denmark, Estonia, Norway and Romania all reported infections for the first time, joining Austria, Croatia, Germany, Greece, North Macedonia, Spain, Sweden and Britain. And concerns grew about the severity of the outbreak in Iran, the source of infections in many other countries. The government there said Thursday that 245 people had been infected — including a member of President Hassan Rouhani’s cabinet and six other officials — and 26 had died.
The collapse in investor confidence spread far beyond stocks. Crude oil fell more than 4 percent, as investors weighed the chance of growing economic paralysis related to travel restrictions, factory shutdowns and other measures to stop the outbreak. The outbreak hit foreign markets hard, too. The FTSE 100 Index in London entered a correction on Thursday, and stocks fell sharply in Paris, Frankfurt, Milan and Madrid, as well as Tokyo and Seoul.
Bond markets broadcast deep pessimism about the economy, as money flooded into Treasury markets, pushing prices sharply higher, and yields — which move in the opposite direction — to once-unthinkable depths. That drop, in part, reflects investors’ expectations that the Federal Reserve may have to cut interest rates to bolster the economy. The S&P 500 is on track for the market’s worst week since the 2008 financial crisis, and other economic indicators are flashing warning signs.
Prices for junk bonds, and even safer corporate debt, fell. Oil prices have tumbled as people cut back on travel and investors worry about a slump in industrial and consumer demand. Meanwhile, money has poured into investments like gold and government bonds, which are generally considered safer.
“Stocks and bonds say we’re doomed,” wrote Chris Rupkey, chief financial economist at MUFG Union Bank, in a research note on Thursday. “Anyone who has a better idea for what lies ahead please let us know because right now the direction ahead for the economy is straight down.” Bond markets — which are far larger than stock markets and especially sensitive to the outlook for growth and inflation — were broadcasting pessimism about the economy even before the outbreak. That pessimism only increased this week, as prices for corporate debt from even the safest of borrowers fell and investors rushed to government debt.
On Thursday, analysts at Goldman Sachs predicted that companies in the S&P 500 would generate no profit growth as a result of the crisis, because of a “severe decline in Chinese economic activity,” disruption in the supply chain for American companies and a slowdown in the U.S. economy. Demand for U.S. Treasurys pushed up prices and drove down yields: The yield on the 10-year Treasury note, a closely watched barometer of investor outlook, fell to a record low of 1.29 percent.
Microsoft was down 7 percent after the company said on Wednesday that its sales in the current quarter would be lower because of a disruption to its supply chain. Anheuser-Busch InBev on Thursday forecast a steep drop in quarterly profit. Its shares fell 9 percent. But the performance of stocks was especially stunning. Randy Watts, chief investment strategist at William O’Neil, an equity research and advisory firm, said the sell-off could get worse, because investors may be wary of holding on to stocks over a weekend that could bring more scary news.
Companies have also scaled back travel. The French cosmetics giant L’Oréal suspended all business travel for its 80,000 employees until the end of March. Nestlé, the giant Swiss food company, said it would suspend all international business trips for its 290,000 workers until mid-March. “I think this is bad, especially going into a Friday,” he said.
In Europe, the FTSE 100 in Britain, the CAC 40 in France and the DAX in Germany were all more than 3 percent lower on Thursday. Asian markets closed the day largely down, though shares in China bucked the general trend, with Shanghai rising 0.1 percent. Shares of Microsoft, the most valuable company in the United States, fell 7 percent after the software giant said on Wednesday evening that its sales in the current quarter would be lower because of the outbreak’s effect on its supply chain. Anheuser-Busch InBev, the maker of Budweiser, forecast a steep drop in quarterly profits. Its shares fell 9 percent.
Kevin Granville and Katie Robertson contributed reporting. In the United States, consumers have been a bright spot over the past year, even as the trade war prompted a broad-based slump in business investment and manufacturing. Part of the reason is that the Federal Reserve has kept interest rates low, which prods consumers to spend more.
But that won’t necessarily work if factories are closed and consumers aren’t willing to risk stepping outside.
“Lower interest rates are not a cure for the coronavirus,” said Mr. Clemons, the private banking strategist.
Already, the consensus estimate for first-quarter domestic growth has slipped to 1.5 percent, according to data from FactSet on Thursday, from 1.7 percent at the end of 2019.
“That moves it beyond the sphere of ‘people feel bad because their 401(k)s are down,’” Mr. Clemons said, “and into the sphere of economic reality.”
Reporting was contributed by Jason Horowitz, Roni Caryn Rabin, Sheri Fink and Farnaz Fassihi.