All 11 Standard & Poor’s 500 sectors turned negative, with financials, industrials and energy the worst performers. All 30 Dow blue-chip stocks were in the red. United Technologies, aerospace giant Boeing, JP Morgan Chase and Goldman Sachs were among the Dow’s biggest drags. Profits for financial firms decline in a low-interest rate environment.
The flight to debt sent the yield on the 10-year U.S. Treasury — a global financial mainstay — to record lows. The trajectory could be an ominous sign of a weakening economy, because a low yield can indicate a lack of confidence in economic growth. Yields decline as bond prices rise. Gold, another safe haven, climbed 1.5 percent. Meanwhile, mortgage rates also hit record lows.
A day earlier, investors appeared heartened by Joe Biden’s Super Tuesday victories and the likelihood of a moderate option to Sen. Bernie Sanders (I-Vt.) for the Democratic presidential nomination. The Dow rocketed nearly 1,200 points, more than 4.5 percent, while the Standard & Poor’s 500 and the Nasdaq climbed 4.2 percent and 3.85 percent, respectively. The bounce came after the International Monetary Fund committed $50 billion to fight coronavirus in low-income and emerging-market countries.
“Yesterday’s market catalysts, clearly a slate of one-offs, were Joe Biden’s success on Super Tuesday and a range of spending announcements to tackle the coronavirus,” including from Asia and the U.S. Congress, said David Rosenberg of Rosenberg Research in an email to The Washington Post. “Markets typically price in an announcement once. It got it yesterday. The news today is the spread of the virus in the U.S. and Italy closing schools, universities and museums.”
Investors had found cause for alarm rather than comfort on Tuesday after the Federal Reserve announced its first emergency rate cut since the 2008 financial crisis, bringing the benchmark rate down 50 basis points. Nor do they appear to have been mollified by Congress’s passage Wednesday of an $8.3 billion spending package to fight the coronavirus on U.S. soil.
“Investor sentiment may also be finally shifting from fear and panic that the cases of the Coronavirus are likely to get much worse to accepting it and even looking beyond it,” Megan Horneman, director of portfolio strategy at Verdence Capital Management in Hunt Valley, Md. wrote in commentary Thursday.
And the 10-year Treasury could go lower if the Federal Reserve cuts rates further at its March meeting.
“The level of the U.S. Treasury 10-year yield makes sense as markets price in the growing probability of the Fed cutting rates to zero, and then engaging in quantitative easing again,” said Scott Mather, chief investment officer of Pimco’s US Core Strategies. “If the Fed pursues that policy, and with rates outside the US already much lower already, it would be very possible for the 10-year yield to fall much lower, perhaps even lower than 50 basis points.”
The global death toll from the coronavirus had surpassed 3,200, and more than 90,000 people have been infected. The outbreak’s hold on the United States is also tightening, with California declaring a state of emergency after its first coronavirus-linked death brought the nation’s death toll to 11. Americans are beginning to face disruption to their work and travel, and the list of major events canceled in the face of the outbreak grows by the hour. Many grocery stores and pharmacies report being cleaned out of bottled water, disinfectant products and shelf-stable and frozen foods.
“We are expecting more dramatic market swings up and down and would not be surprised if we test last Friday’s lows again,” said David Donabedian, chief investment officer of CIBC Private Wealth Management, which manages $62 billion, in an email. “We expect that economic data over the next two to three months will get worse before it gets better.”
The World Health Organization said this week that covid-19, the disease caused by the virus, has killed about 3.4 percent of those diagnosed with the illness — a higher rate than estimated previously. But President Trump downplayed worries on Wednesday evening, telling Fox News that the 3.4 percent mortality rate announced by the World Health Organization was “false” and suggesting it was under 1 percent.
“This is really my hunch,” Trump said.
The outbreak has disrupted global supply chains and threatens to stymie economic growth since the first cases emerged in Wuhan, China, in late December, roiling markets across the globe. Trump has staked much of his argument for reelection on the strength of Wall Street, which had been setting record highs as recently as three weeks ago.
Global travel is plummeting as event cancellations and travel restrictions mount, delivering a brutal blow to tourism, aviation, cruises and hospitality.
Sequoia Capital, a respected and highly successful Silicon Valley venture capital firm, issued a memo to its founders and to the chief executives of its portfolio companies on Thursday that warns of “potential business consequences” of the coronavirus. Sequoia called the epidemic the “black swan of 2020.”
“It will take considerable time — perhaps several quarters — before we can be confident that the virus has been contained,” according to the memo. “It will take even longer for the global economy to recover its footing.”
Investors are looking forward to ADP payroll numbers and fresh manufacturing data Tuesday to further suss out the damage coronavirus has done to the global economy. Analysts are predicting global economic growth could slow to the lowest levels since the financial crisis this quarter.
“Earnings guidance over the next few weeks and soft data such as confidence surveys will be the primary source of trying to assess how long the economic damage from the virus will last,” Horneman wrote in commentary.