UKX FTSE 100 Index

By Gunjan Banerji and Will Horner 

The Dow Jones Industrial Average dropped more than 600 points Friday as a spreading viral outbreak fanned fears about global economic growth, igniting volatility across markets.

Investors have quickly soured on the market in recent days, fearful that the outbreak would have far-reaching implications on the global economy. Unlike corporate earnings or economic data, the long-run impact of the virus is trickier to measure for many investors and analysts, injecting even greater uncertainty into markets.

The blue-chip index dropped 610 points, or 2.1%, as losses accelerated midday. The S&P 500 lost 1.8% on Friday, and the tech-heavy Nasdaq Composite fell 1.6%.

The week was punctuated by flare-ups in market volatility, a sharp shift from the relatively serene ascent for stocks as they jumped to record after record with astonishing speed in recent months.

The S&P 500 had been on one of its longest stretches without a move of more than 1% since 1969, before the calm shattered to start the week. In a dramatic reversal, the broad stock market gauge is on track to record three moves of at least 1% over the past five days.

"I think people were lulled to sleep," said R.J. Grant, director of equity trading at KBW. "It does not take much to throw things off kilter.

As investors dumped equities, they reached for traditionally safer assets like Treasurys and gold. In one sign of the growth worries, the yield on the benchmark 10-year U.S. Treasury note edged back below the yield of the three-month bill this week. The phenomenon, known as a yield-curve inversion, is often interpreted as a warning sign about a recession ahead.

The World Health Organization on Thursday declared the coronavirus -- which has now sickened more than 9,500 people and killed over 200 -- a public-health emergency of international concern. Meanwhile, the U.S. saw its first person-to-person transmission of the virus, escalating concerns about its spread.

The growing contagion has roiled markets as investors attempt to assess whether the virus could weigh on China's economy as businesses are shut, borders closed and flights suspended, while also gauging the outbreak's wider impact.

The number of people sickened by the new coronavirus in China now exceeds the global total infected with severe acute respiratory syndrome, or SARS, which killed nearly 800 people after emerging from southern China in late 2002 and spreading into 2003.

The potential effects of the coronavirus darkened the outlook at a time when many investors had been encouraged by progress on trade between two of the biggest world economies, along with three interest rate cuts by the Federal Reserve.

"It could get worse before it gets better," said Adam Phillips, director of portfolio strategy at wealth management firm E.P. Wealth Advisors. "We alleviate one area of uncertainty and we get two more in its place."

Mr. Phillips said he has been advising clients to brace for choppy waters ahead in the stock market.

The outbreak also comes as some big manufacturers have exhibited signs of strain as their earnings results poured in throughout the week, raising other concerns about the economy. Caterpillar, often considered a bellwether for the economy, said Friday it expects demand for its machinery to fall this year, citing global economic uncertainty that crimped sales in the latest quarter. Its shares dropped 3.2% Friday.

Boeing earlier this week reported its first annual loss in more than two decades, as one of its aircraft has been grounded world-wide. And 3M is planning layoffs during a global restructuring.

Meanwhile, new data Friday showed that business activity faltered. One measure, the Chicago Business Barometer, fell to its lowest point in about four years, hitting 42.9 and falling well below expectations. Readings under 50 indicate activity is contracting.

"It's a disappointing number," said Chris Zaccarelli, chief investment officer for Independent Advisor Alliance. "It's been a tale of two economies."

Although manufacturing data has disappointed recently, the U.S. consumer continues to spend, restoring some faith in the decadelong economic expansion.

Fresh data released Friday showed household spending rose a seasonally adjusted 0.3% in December from November. Personal income advanced 0.2% last month. The spending figures were in line with economists' expectations, while the personal income number fell short of expectations.

The rocky week for major indexes has been marked by even more explosive moves in individual stocks. The sharply divergent fortunes of some corners of the stock market was on stark display. As manufacturing heavyweights delivered lackluster news, some tech highflyers outperformed, soaring to unprecedented heights.

Amazon.com jumped 8.2% after the e-commerce giant's fourth-quarter sales set a record for the holiday period. It is poised to become the fourth U.S. company to close with a $1 trillion market value and close at a record.

Tesla's stock continued to soar after the electric-car maker reported its third consecutive quarter of record vehicle deliveries. Its shares jumped 10% Thursday and edged higher Friday.

International Business Machines rose about 5.2% after the technology company said Chief Executive Ginni Rometty is stepping down following a challenging eight-year run.

Some investors said the recent declines were healthy, given how quickly major indexes had clinched record after record in recent months.

"We've had such a huge run last year," Mr. Zaccarelli said. "You have to keep things in perspective."

Stocks in Asia were mixed. The Hang Seng Index had its worst month since August 2019 and exchanges in China remained shut.

Elsewhere, new data on major European economies proved to be a disappointment. France's output shrank in the fourth quarter as strikes and protests against the government's pension plan curtailed business activity. Italy's economy also contracted in the latest quarter.

The pan-continental Stoxx Europe 600 gauge fell about 1.2% this month, its biggest one-month decline since August 2019. The U.K.'s FTSE 100 index just finished its worst week since October 2018 after the country reported its first two cases of the virus.

"There was definitely a sense of euphoria that was priced into the market," Brian O'Reilly, head of investment strategy at the Dublin-based Mediolanum International Funds, said. "But we are not expecting a rebound in global GDP at least until the middle of this year. We think it will just take time for confidence to build."

Write to Gunjan Banerji at Gunjan.Banerji@wsj.com and Will Horner at William.Horner@wsj.com

(END) Dow Jones Newswires

January 31, 2020 15:44 ET (20:44 GMT)

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