By Anna Isaac and Frances Yoon
U.S. stocks tumbled Wednesday as investors' anxiety about the
economic fallout from the coronavirus outbreak left markets poised
for another day of tumultuous trading.
The Dow Jones Industrial Average dropped 822 points, or 3.3%.
The S&P 500 fell 3.1%, and the Nasdaq Composite lost 2.7%. The
declines continued a volatile week that saw stocks plunge Monday
only to recover much of their losses Tuesday. A closely watched
measure of turbulence in U.S. stocks, the Cboe Volatility Index,
was hovering around its highest level in a year.
"For private investors, getting into markets at the moment is
like juggling with knives: it's just far too risky," said Ian
Shepherdson, chief economist at Pantheon Macroeconomics. "For
short-term traders, this volatility is very exciting, but for
long-term investors, it's worrying."
After an 11-year run, the bull market in S&P 500 stocks is
coming to an end, equity analysts at Goldman Sachs Group said in a
note Wednesday. Lower crude-oil prices and interest rates are
likely to erode earnings for energy and finance companies, and
business activity will probably be weaker than previously
anticipated in other sectors, they wrote.
"Both the real economy and the financial economy are exhibiting
acute signs of stress," Goldman Sachs said in the note.
European stocks drifted lower, shedding much of the gains posted
in the morning after an unexpected rate cut by the Bank of England.
That left the Stoxx Europe 600 index wavering between gains and
losses. The easing of monetary policy in the U.K. came with other
measures to support the economy, including cheaper borrowing for
small businesses.
The BOE made its move just over a week after the Federal Reserve
cut its key interest rate. The European Central Bank is expected to
ease policy Thursday as authorities take steps to shield economic
growth from the impact of the epidemic as business activity and
travel is curtailed.
"The U.K. was the first example of truly coordinated action from
the central bank and the Treasury," said James Smith, developed
markets economist at ING Bank. Markets are now poised to see if
countries and central banks would follow the U.K. 's lead. "The Fed
will be under a lot of pressure with rates so low elsewhere," Mr.
Smith said.
The yield on 10-year U.S. Treasurys edged down to 0.704%, from
0.743% on Tuesday. Bond yields, which move inversely to prices,
have careened in recent days: the widely watched benchmark tumbled
to a record intraday trough near 0.4% on Monday as investors sold
off equities and raced for the shelter of government bonds.
"When we talked about recession fears over the years since the
financial crisis, we've always been comforted by relatively narrow
credit spreads, " said Seema Shah, chief strategist at Principal
Global Investors. "Now we're seeing those start to widen, and
corporate debt levels have risen recently, risks of defaults are
that bit higher."
Brent crude, the global benchmark for oil prices, dropped 2.4%
to $36.33 a barrel. Saudi Arabia unveiled plans Wednesday to
increase its production levels even further days after it
instigated a price war with Russia.
Meanwhile, the number of coronavirus cases in the U.S. topped
1,000, while China reported an increase in infections imported from
abroad, highlighting the challenges authorities face in containing
the epidemic. New York set up the country's first "containment
area" around one of the largest clusters of cases in the
nation.
"Nobody trusts the numbers at this point in the U.S., because of
the failure to get testing kits out," Mr. Shepherdson said. "What
if the U.S. next week reports 2,000 new cases in a day? Markets
would look at that and see it as a sharp uptick and we could have a
very messy day again if that happens."
In the Asia-Pacific region, major markets reflected investors'
continued concerns about global growth prospects. Japan's Nikkei
225 index declined 2.3% to close at its lowest level since December
2018. Australia's S&P/ASX 200 dropped 3.6% to enter a bear
market, typically defined as a decline of at least 20% from a
recent peak.
"It's too early to call this stabilization, and it's too early
to position for a rebound here," said Mayank Mishra, a global macro
strategist at Standard Chartered Bank in Singapore. "Financial
markets will continue to focus on the economic implications from
the virus, and right now the global outlook for growth is not
rosy."
While markets had already priced in likely interest-rate cuts
and other support from central banks, government action moves at a
slower pace, according to Mr. Mishra. "The fiscal response is a
slower-moving beast, so let's see how that helps stabilize global
financial markets," he said.
Karen Langley contributed to this article.
Write to Anna Isaac at anna.isaac@wsj.com and Frances Yoon at
frances.yoon@wsj.com
(END) Dow Jones Newswires
March 11, 2020 10:07 ET (14:07 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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