By Avantika Chilkoti , Gunjan Banerji and Chong Koh Ping
Stock markets around the world extended a punishing selloff
Friday, dragged toward their worst week since the financial crisis
by mounting investor unease about the economic fallout from the
coronavirus epidemic.
The Dow Jones Industrial Average shed more than 1000 points, or
about 4.1% and is now trading around 15% below its Feb. 12 high.
The S&P 500 fell 3.7% and the tech-heavy Nasdaq Composite lost
about 3%.
"We're drinking from a fireman's hose this morning," said
Patrick Spencer, managing director at U.S. investment firm Baird.
"It wasn't a good close last night and certainly panic ensued."
Investors have rushed to sell stocks and riskier investments
such as oil, leading to a dizzying week on Wall Street and one of
the worst in recent memory. Fears about the coronavirus have
rapidly mushroomed, with investor anxiety that its spread will dent
economic growth around the world strengthening as new cases cropped
up. Goldman Sachs Group said it is now expecting 0% corporate
earnings growth in 2020.
Trading has occurred at a frenzied pace, fueling the swift
decline. Stock trading volumes jumped to a year-long high on
Thursday while listed options trading this week soared to some of
the highest levels ever.
The frenetic trading helped push the S&P 500 down more than
10% from its recent highs at unprecedented speed, with the broad
index falling from a record into a correction in just six sessions.
Adding to the anxiety is that much remains unknown about how far
the virus will spread and the true harm it could do to economic
growth around the world.
"This unfortunately is the perfect storm," said Doug Cohen,
managing director at Athena Capital Advisors. "This is not
something out of a standard economic textbook."
Mr. Cohen said some of his clients have been worried that the
worst isn't yet over for stocks and they want to sell or hedge
their positions to avoid even bigger losses.
Stock markets in parts of the world worst affected by the virus
shed substantial ground. The Stoxx Europe 600 was down 4.4%. In
Asia, Japan's Nikkei 225, South Korea's Kospi and Australia's
S&P/ASX 200 all closed down more than 3%.
The yield on the 10-year U.S. Treasury note dropped to new
all-time low Friday as bond prices rallied, with the yield on the
note hitting 1.157%, according to Tradeweb. German 10-year bunds
yielded minus 0.592%, down from minus 0.540% Thursday.
Other safe-haven assets also rallied, with the yen gaining 1.2%
against the dollar.
Some investors have warned that it is soon to bet on a swift
rebound in the stock market. And others are bracing for volatility
ahead of the weekend break.
"Market feels panic now...nobody knows how bad or how good the
situation will get," said Zhiwei Ren, a portfolio manager at Penn
Mutual Asset Management. "It is better to stay balanced and don't
rush to buy the dip yet."
More than 82,000 people have been infected with the coronavirus
globally and more than 2,800 have died. It has spread to at least
46 countries, according to the latest tally by the World Health
Organization. On Friday, China reported 327 new cases -- the lowest
since Jan. 23 -- and 44 deaths.
"I don't think Friday would be a good day to do much because we
have been selling off all week and investors are a bit jittery,"
said Paul Brain, head of fixed income at Newton Investment
Management, a BNY Mellon subsidiary. "You don't know if you'll get
capitulation selling coming through with people who have been
holding on all week panicking and sell into Friday afternoon."
Investors are bracing for more volatility ahead. The Cboe
Volatility Index, or VIX, jumped to 47.44 early Friday, the highest
level since at least October 2011. The VIX, which is based on
options on the S&P 500, tends to rise when stocks are falling
and decline as markets rise.
Market swings may have snowballed because of derivatives
activity and funds on Wall Street that make knee-jerk buying and
selling decisions as tumult grows, spurring billions of dollars in
selling this week.
Some investors are beginning to compare this week's rout to past
stock market falls. For some, like Peter Dixon, an economist at
Commerzbank, the drop has been more like dot-com era than the
2008-09 global financial crisis.
"It's a different kind of an event because we're reacting to
what might happen, whereas in the crisis we were reacting to what
was actually going on in real time," said Mr. Dixon. "It's almost
impossible for investors and analysts to make any sensible
predictions as to what might happen -- we're very much flying
blind," he added.
It has been a startling shift for many investors. Earlier in
February, confidence in highflying technology companies helped push
major U.S. indexes to new heights. Investors kept betting that the
market darlings would continue rising. This week, shares of tech
companies within the S&P 500 are some of the biggest
losers.
Travel and leisure stocks were among the biggest losers in the
European market as governments took fresh measures to contain the
outbreak and people continued to cancel travel plans.
Italian assets suffered in particular, as the country has become
the epicenter for the outbreak in Europe, sparking fresh concerns
around political instability and economic recession in one of the
eurozone's largest economies. The yield on 10-year Italian
government bonds jumped to 1.155%, from 1.080% Thursday.
The travel sector has taken a hit in the U.S. in recent sessions
too, with shares in Royal Caribbean Cruises down 27.2% for the week
and American Airlines Group down about 27.9%.
Worries that the virus will prove a drag on global economic
growth also continued to weigh on commodities. Brent crude, the
global benchmark, fell about 3.9% to $49.74 a barrel, reaching the
lowest level since December 2018 in early trading.
Governments across the globe are taking action to stem the
spread of the virus and support the economy. Some investors have
ramped up bets that the Federal Reserve will slash rates again this
year, after cutting them three times in 2019.
But some analysts warn that central banks, which have cut rates
and launched massive asset-purchase programs in recent years, might
not be able to stem losses in the face of an outbreak that has a
jittery public canceling travel plans and potentially curbing
spending.
"I personally can't see why cheap money will stop this rout
because this is the type of uncertainty that isn't economic. It
isn't about Trump and trade uncertainty. This is about you and I
deciding that we are going to change our behaviors for a while,"
said Neil Dwane, global strategist at Allianz Global Investors.
Write to Avantika Chilkoti at Avantika.Chilkoti@wsj.com, Gunjan
Banerji at Gunjan.Banerji@wsj.com and Chong Koh Ping at
chong.kohping@wsj.com
(END) Dow Jones Newswires
February 28, 2020 11:09 ET (16:09 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.