Dow Industrials Fall More Than 900 Points
February 25 2020 - 3:02PM
Dow Jones News
By Akane Otani and Caitlin Ostroff
A rout in global financial markets deepened Tuesday, sending the
Dow Jones Industrial Average down about 800 points and Treasury
yields sliding to fresh lows.
The blue-chip index was down 921 points, or 3.3%, near the lows
on a volatile trading day. The S&P 500 fell 3.2% and the Nasdaq
Composite lost 2.9%, erasing its remaining gains for 2020.
For much of the past several weeks, investors have been fixated
on one issue: the potential for a growing coronavirus epidemic to
hit economic activity around the world.
Hope that health officials would be able to contain the
epidemic, resulting in only a short-term disruption to economic
activity, had helped keep stocks near all-time highs up until just
last week. But in the past few days, that optimism has increasingly
turned into skepticism -- sending stocks, oil prices and bond
yields sliding.
Tuesday's selling accelerated after reports showed the disease
had spread even further, with countries from Switzerland to Austria
to South Korea reporting new infections.
Meanwhile, the yield on the benchmark 10-year U.S. Treasury note
-- used as a reference rate for everything from mortgages to
student loans -- fell to 1.319%, trading around a record low,
according to Tradeweb.
"The size of this economic shock is looking increasingly large
on a global scale," said James Athey, a senior investment manager
at Aberdeen Standard Investments. "What we're just seeing here is
the crack in that sentiment-driven equity rally."
Among the biggest decliners in the stock market Tuesday: shares
of companies whose profits are vulnerable to slowdowns in consumer
spending and travel.
Bank stocks retreated, with Citigroup, Goldman Sachs and Bank of
America all down at least 2%. The continued slide in long-term bond
yields threatens to cut into banks' lending profitability.
Energy shares also tumbled. The S&P 500 energy sector is
trading down 18% for the year, hurt by fears that a slowdown in
global economic activity will drag oil prices lower.
Meanwhile, traders placed bets on further volatility. The Cboe
Volatility Index, which tracks expectations for swings in the
S&P 500, jumped 8.8% to bring its year-to-date gain to 98%.
"I just don't think we can accept the numbers coming out of
China at face value," said Mark Grant, managing director and chief
global strategist at B. Riley FBR.
With little clarity on the severity of the epidemic, as well as
uncertainty about if officials will be able to effectively contain
it, Mr. Grant said he wouldn't be surprised if there was further
volatility across markets.
Investors had largely begun the year with hopes that the global
economy would stabilize given a cooling of trade tensions between
the U.S. and China and central banks' willingness to hold interest
rates at low levels.
But the coronavirus epidemic is throwing into question many
firms' projections for growth, raising the possibility of a
longer-term disruption to economic activity.
The head of the International Monetary Fund said Tuesday that
the fund was downgrading its global-growth projections, as well as
trying to figure out if the economic fallout stemming from the
epidemic would primarily occur in the first quarter of the
year.
Elsewhere, the Stoxx Europe 600 ended down 1.8%, closing out its
worst four-day stretch since 2016, after having fallen more than 3%
Monday.
China's Shanghai Composite Index lost 0.6%, while Japan's Nikkei
Stock Average, which was closed Monday, fell 3.3%.
"This virus doesn't respect borders. There's no real reason to
expect it's going to be easy to contain," said Jan Lambregts,
global head of financial markets research at Rabobank. "The real
economic impact of this is going to be felt."
Write to Akane Otani at akane.otani@wsj.com and Caitlin Ostroff
at caitlin.ostroff@wsj.com
(END) Dow Jones Newswires
February 25, 2020 14:47 ET (19:47 GMT)
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