Stocks Drop on Cloudy Outlook
February 20 2020 - 4:32PM
Dow Jones News
By Avantika Chilkoti and Alexander Osipovich
U.S. stocks slid Thursday as concerns mounted that the
coronavirus outbreak could have more of an impact on corporate
earnings and global growth than investors initially believed.
The Dow Jones Industrial Average ended lower by 132 points, or
0.5%, paring declines of more than 300 points earlier in the
session. The S&P 500 dropped 0.4%, while the Nasdaq Composite
declined 0.7%. All three indexes have posted double-digit gains
over the past year and set repeated highs in recent sessions.
For the most part, investors have shrugged off the outbreak that
has killed more than 2,100 people and infected more than 74,000,
mostly in mainland China. When the outbreak erupted into the
headlines last month, many analysts expected markets to follow the
pattern of past pandemics, such as severe acute respiratory
syndrome, in which stocks sold off sharply at the outset, only to
rebound once the rate of infections slowed.
But now doubts have set in as some analysts question whether
investors have been too sanguine in their reaction.
"People are saying, 'Wait a minute, is China going to get back
to business as quickly as we thought?'" said David Lafferty, chief
market strategist at Natixis Investment Managers.
Although fourth-quarter earnings for companies around the world
have generally been viewed as better than or in line with
expectations, forecasts for 2020 are being tempered by the impact
of the coronavirus outbreak.
Procter & Gamble warned Thursday that the outbreak will have
a material impact on its sales and earnings for the current
quarter, citing reduced store traffic in China and disruptions to
its supply chain. That followed a similar announcement from Apple
earlier this week.
Goldman Sachs analysts warned in a research note that investors
may be too sanguine about the resilience of corporate earnings in
the face of the outbreak.
"We believe the greater risk is that the impact of the
coronavirus on earnings may well be underestimated in current stock
prices, suggesting that the risks of a correction are high," the
Goldman analysts said, referring to the potential for a 10%
pullback by major stock indexes.
Prices for gold and U.S. government bonds rose as investors
bought assets seen as havens. Gold futures gained 0.6%, to
$1,616.60, their highest level in about seven years. The yield on
the 10-year U.S. Treasury note fell to 1.530%, from 1.569% on
Wednesday. Bond yields fall as prices rise.
China has stepped up efforts to limit the fallout of the
outbreak by lowering both short- and long-term lending rates this
week. Its central bank also plans to offer credit support to
businesses hurt by the epidemic.
In corporate news, shares of E*Trade Financial rallied 22% after
Morgan Stanley said it is buying the company in a $13 billion deal.
Shares in Morgan Stanley dropped 4.7%.
Shares in L Brands fell 3.6% after The Wall Street Journal
reported that the company is near a deal to sell control of
Victoria's Secret to a private-equity firm in a transaction that
values the lingerie brand at about $1.1 billion.
Oil prices extended a recent rebound, climbing for the sixth
time in seven trading sessions after weekly inventory figures
showed U.S. crude stockpiles rose less than expected. U.S. crude
futures rose 0.9% to $53.78 a barrel.
Fresh data from the Labor Department showed the number of
Americans applying for first-time unemployment benefits rose
slightly last week, but remained at a historically low level.
Initial jobless claims rose by 4,000 in the week ended Feb. 15 to a
seasonally adjusted 210,000, in line with economists'
expectations.
Overseas, the pan-continental Stoxx Europe 600 index sank 0.9%.
The Shanghai Composite Index closed up 1.8%, while Hong Kong's
benchmark Hang Seng Index lost 0.2%.
Australia's equity benchmark S&P/ASX 200 index, meanwhile,
closed at a record for a second straight day, propelled 0.3% higher
on the back of strong corporate earnings.
In currencies, the South Korean won lost more than 1% against
the U.S. dollar after the number of new coronavirus cases in the
country surged to more than 100.
Write to Avantika Chilkoti at Avantika.Chilkoti@wsj.com and
Alexander Osipovich at alexander.osipovich@dowjones.com
(END) Dow Jones Newswires
February 20, 2020 16:17 ET (21:17 GMT)
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