U.S. stocks tumbled to an almost 12-week low and bond yields plunged to records on rising concern the coronavirus will upend global supply chains critical to economic growth.
The S&P 500’s four-day rout reached almost 7.6 per cent, with losses accelerating Tuesday after the U.S. Centers for Disease Control and Prevention warned Americans to prepare for a coronavirus outbreak at home. That follows a rapid increase in cases from Italy to Iran and Japan, with a growing list of companies warning that profits will suffer as economies around the world suffer. The S&P, Dow Jones Industrial Average and Nasdaq Composite indexes all set record highs this month.
Wall Street’s three major stock indexes fell 3 per cent as the coronavirus spread further around the world and officials described it as “a rapidly escalating epidemic,” a day after the S&P 500 and the Dow Industrials’ biggest daily decline in two years.
The 10-year U.S. Treasury yield fell to a record low of 1.3055 per cent as investors sought shelter from the virus’s impact on the outlook for growth. All 11 sectors in the S&P 500 fell with energy, material and financial shares leading the declines. Volatility spiked, sending the Cboe’s measure of equity gyrations surging past 30 for the first time since 2018.
“The market is pricing in a significant slowdown in GDP and a 10 per cent impact on earnings,” said Zhiwei Ren, portfolio manager at Penn Mutual Asset Management. “And since no one knows how bad the infection will be, it is hard to make a bet on economy.”
U.S. central bankers are closely monitoring the spreading coronavirus, but it is “still too soon” to say whether it will result a material change to the outlook, Federal Reserve Vice Chairman Richard Clarida said.
Based on the latest available data, the Dow Jones Industrial Average fell 880.79 points, or 3.15 per cent, to 27,080.01, the S&P 500 lost 97.59 points, or 3.03 per cent, to 3,128.3 and the Nasdaq Composite dropped 255.67 points, or 2.77 per cent, to 8,965.61.
The TSX fell 385.37 points, or 2.19 per cent to 17,177.37.
Elsewhere, European stocks closed in the red, while bonds from the region were mixed. Crude oil slumped again after Monday’s slide of nearly 4 per cent.
Japanese shares tumbled more than 3 per cent as traders returned after a holiday. Stocks fell in China and Australia and pushed higher in South Korea and Hong Kong. The yen strengthened against the dollar for a third day.
Erratic market moves suggest investors remain on edge over the economic impact of the virus. The World Health Organization has held off from declaring a global pandemic even as cases surged in South Korea, Italy and Japan.
“The markets are pricing in the what ifs of the coronavirus, not necessarily exactly what is,” said Brent Schutte, chief investment strategist at Northwestern Mutual Wealth Management Co.
Analysts at Oxford Economics Ltd. said the epidemic could wipe more than US$1 trillion from global domestic product, while the International Monetary Fund lowered its growth forecasts for the world economy.
Bloomberg.com, with files from Reuters