U.S. Stocks Drop on Coronavirus's Economic Impact
February 21 2020 - 10:27AM
Dow Jones News
By Caitlin Ostroff and Gunjan Banerji
Stocks and Treasury yields dropped Friday as precious metals
rallied on early signs of the coronavirus outbreak curtailing
economic growth in some markets.
The S&P 500 index fell 0.9% shortly after the opening bell.
The Dow Jones Industrial Average lost 244 points, or 0.8%. The
tech-heavy Nasdaq Composite slipped 1.3%.
U.S. stocks are on track for declines this week, while
traditionally safer assets like gold and government bonds are
headed toward gains.
The concurrent gains in precious metals and government bonds
this year have highlighted the jitters that have percolated markets
even as major U.S. indexes are sitting close to their records.
Typically, investors ditch haven assets like gold and government
bonds as stocks crest to fresh highs. Some analysts have attributed
the rush for haven assets to the viral outbreak.
The yield on the 10-year Treasury note fell sharply to 1.456% in
early trading Friday, from 1.524% Thursday as bond prices rose.
Gold prices rose about 1.7%, continuing a rally that has sent the
precious metal to seven-year peaks.
The yield on 10-year Treasurys has traded below the three-month
yield since Tuesday as investors seek longer-duration U.S. bonds as
a safe investment amid coronavirus fears, said Andrey Kuznetsov, a
senior credit portfolio manager at Hermes Investment
Management.
"If we are in an environment when we will see a
lower-than-expected growth on the back of coronavirus, this will
increase demand for low-risk assets," he said.
Investors may be underestimating the impact of the outbreak on
U.S. companies' earnings as economic activity slows in China and
tourism takes a hit, Goldman Sachs Group warned. More than 75,000
people have been diagnosed with coronavirus, and over 2,000 have
died globally. South Korea reported its first fatality, while two
patients in Iran also died and confirmed cases began to climb in
Beijing.
The worries about the coronavirus come as manufacturing data has
continued to disappoint. Preliminary figures for Japan's February
manufacturing activity meanwhile showed the sharpest contraction in
more than seven years, Deutsche Bank said. Data on the country's
services sector fell to the lowest since April 2014 as the spread
of coronavirus hurt tourism, according to IHS Markit.
While German figures for manufacturing showed slight
improvement, it may be still too early to capture the impact of the
coronavirus, said Aila Mihr, a senior analyst at Danske Bank
Research. New export orders pointing to how many German goods are
being purchased from countries including China remained weak.
The figures also showed longer delivery times from suppliers to
Germany. While this usually indicates more demand for goods,
investors see it now as a result of the shutdown in Chinese supply
chains and an indication that the coronavirus is weighing on the
German economy, she said.
"In the grand scheme of things, we kind of read them as the calm
before the storm," Ms. Mihr said. "We don't think we have seen the
worst yet."
Investors have also been parsing individual earnings releases in
recent days. Shares of Deere rose 8.3% after the tractor and
construction machinery maker posted earnings that beat expectations
for the first quarter.
Sprint gained 6.6% after the wireless carrier and T-Mobile US
agreed on new terms for their merger.
Dropbox climbed 18.9% after the file-sharing service reported
quarterly results that beat Wall Street's expectations.
Amrith Ramkumar contributed to this article.
Write to Caitlin Ostroff at caitlin.ostroff@wsj.com and Gunjan
Banerji at Gunjan.Banerji@wsj.com
(END) Dow Jones Newswires
February 21, 2020 10:12 ET (15:12 GMT)
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