Coronavirus infects the market - Wall Street has worst week since 2008

Stocks sank again Friday after another wild day on Wall Street, extending a rout that handed the market its worst week since October 2008 at the height of the financial crisis.

The market clawed back much of its intraday losses in the last 15 minutes of trading as some buyers emerged, keeping the indexes from another steep plunge.

The Dow Jones Industrial Average swung back from an early slide of more than 1,000 points to close around 350 points lower. The S&P 500 fell 0.8 per cent, while the Nasdaq reversed an early decline to finish flat.

The market’s losses moderated somewhat after the United States Federal Reserve released a statement saying it stood ready to help the economy if needed. Investors increasingly expect the Fed to cut rates at its next policy meeting in mid-March.

Global financial markets have been rattled by the virus outbreak that has been shutting down industrial centers, emptying shops and severely crimping travel all over the world. More companies are warning investors that their finances will take a hit because of disruptions to supply chains and sales. Governments are taking increasingly drastic measures as they scramble to contain the virus.

The rout has knocked every major index into what market watchers call a ‘correction’, or a fall of 10 per cent or more from a peak. The last time that occurred was in late 2018, as a tariff war with China was escalating. Market watchers have said for months that stocks were overpriced and long overdue for another pullback.

Bond prices soared again as investors sought safety and became more pessimistic about the economy’s prospects. That pushed yields to more record lows. The yield on the 10-year Treasury note fell sharply, to 1.14 per cent from 1.30 per cent late Thursday. That’s a record low, according to TradeWeb. That yield is a benchmark for home mortgages and many other kinds of loans.

Crude oil prices sank 4.9 per cent over worries that global travel and shipping will be severely crimped and hurt demand for energy. The price of benchmark US crude has now fallen 15 per cent this week.

“All this says to us is that there are still a lot of worries in the market,” said Gene Goldman, chief investment officer at Cetera Financial Group. “We need the Fed to come out and say basically guys, we got your back.”

Traders have been growing more certain that the Federal Reserve will be forced to cut interest rates to protect the economy, and soon. Goldman said the Fed’s current lack of action amounts to a tightening of rates compared with other nations and their actions to offset the impact of the coronavirus.

Investors now widely expect the Fed to cut interest rates by a half-point at its meeting that winds up March 18. According to data from CME, the expectations for a half-point cut jumped from 47 per cent just before the Fed’s statement was released to 100 per cent shortly thereafter.

EYE-POPPING DAMAGE

The damage from a week of almost relentless selling was eye-popping: The Dow fell 3,583 points, or 12.4 per cent. Microsoft and Apple, the two most valuable companies in the S&P 500, lost a combined US$300 billion. In a sign of the severity of the concern about the possible economic blow, the price of oil sank 16 per cent.

The latest losses have wiped out the S&P 500’s gains going back to October. The benchmark index is still up 6.1 per cent over the past 12 months, not including dividends.

The sell-off follows months of uncertainty about the spread of the virus, which hit China in December and shut down large swathes of that nation by January. China is still the hardest hit country and has most of the 83,000 cases worldwide and related deaths.

Uncertainty turned into fear as the virus started jumping to places outside of the epicentre and dashed hopes for containment.

“Fear is a stronger emotion than hope,” said Ann Miletti, head of active equity at Wells Fargo Asset Management. “This is what we’re seeing today and this week and over the past seven days.

Airlines have suffered some of the worst hits as flight routes are cancelled, along with travel plans. Big names like Apple and Budweiser brewer AB InBev are part of a growing list of companies expecting financial pain from the virus. Dell and athletic-wear company Columbia Sportswear are the latest companies expecting an impact to their bottom lines.

CRUISES HIT HARD

Cruise operators have also been hard hit, with shares sinking 30 per cent or more as shipboard infections rose. But those companies were having a far better day Friday, with some on Wall Street believing that the sell-off was overdone. Shares of Royal Caribbean Cruises rose 4.4 per cent, while Norwegian Cruise Line Holdings gained 7.3 per cent. Carnival’s shares climbed 5.1 per cent.

A big concern investors have is that the stock market rout could have a psychological effect on consumers, making them reluctant to spend money and go to crowded places like stores, restaurants and movie theatres.

The late-2018 stock market plunge, for instance, derailed holiday sales that year. Now, analysts are worried that the latest stock swoon could cause consumer spending – which makes up some 70 per cent of the economy and has played a huge role in keeping the US expansion going – to contract again.

Craig Johnson, president of Customer Growth Partners, a consumer consultancy, says he had expected annual retail sales to be up 4.1 per cent, but he now says it could increase just 2.2 per cent if the impact of the new virus in China persists beyond April.

“This is a moving target right now,” he said. “There is a lot of uncertainty.”

Many companies face the prospect of crimped financial results with their stocks already trading at high levels relative to their earnings. Before the virus worries exploded, investors had been pushing stocks higher on expectations that strong profit growth was set to resume for companies after declining for most of 2019.

Nearly 60 nations representing every continent, except Antarctica, have confirmed cases. The virus outbreak has prompted a wide range of reactions from nations hoping to contain its spread and economic impact.

The Geneva auto show was cancelled as Swiss authorities banned large events of more than 1,000 people. Parts of Italy’s northern industrial and financial centre remain under quarantine.

– AP

MARKET ROUNDUP:

The Dow fell 357.28 points, or 1.4 per cent, to 25,409.36

The S&P 500 slid 24.54 points, or 0.8 per cent, to 2,954.22

The Nasdaq rose 0.89 points, or less than 0.1 per cent, to 8,567.37

The Russell 2000 index of smaller company stocks lost 21.40 points, or 1.4 per cent, to 1,476.47

In commodities trading, benchmark crude oil fell US$2.33 to settle at US$44.76 a barrel

Brent crude oil, the international standard, dropped US$1.66 to close at US$50.52 a barrel

Wholesale gasolene fell 2 cents to US$1.39 per gallon

Heating oil was unchanged at US$1.49 per gallon

Natural gas fell 7 cents to US$1.68 per 1,000 cubic feet

Gold fell US$75.90 to US$1,564.10 per ounce

Silver fell US$1.27 cents to US$16.39 per ounce

Copper fell 2 cents to US$2.55 per pound

The dollar fell to ¥108.42 Japanese yen from ¥109.95 yen on Thursday.

The euro weakened to US$1.0967 from US$1.0987