By Steven Russolillo and Avantika Chilkoti
U.S. stocks declined Tuesday after the first reported case in
the U.S. of a dangerous pneumonialike virus that originated in
central China.
The Dow Jones Industrial Average dropped 0.6%, poised for its
first decline in six sessions. The S&P 500 and Nasdaq Composite
fell 0.3%. All three indexes have hit a series of repeated highs in
recent weeks since the U.S. and China indicated progress on a trade
deal.
The Dow was weighed down by a 5.5% drop in shares of Boeing,
which declined on reports that the aerospace giant isn't expecting
regulators to approve its 737 MAX until June or July.
The stock, which was halted for news, remains the second most
expensive stock in the price-weighted index, which means moves in
its share price can have a disproportionately large effect on the
Dow's overall change.
The benchmarks followed their overseas counterparts lower
Tuesday. The pan-continental Stoxx Europe 600 index lost 0.1%. The
Shanghai Composite dropped 1.4%, its biggest drop in more than two
months, and the Chinese yuan lost 0.6% against the dollar in
offshore trading.
The afternoon selloff came after federal health officials in the
U.S. identified the first case of the coronavirus in the U.S., in
Washington state. That report came soon after a leading Chinese
health official said the newly identified virus has spread between
humans, claiming six lives so far.
The news that the virus has already been found in the U.S. drove
the market down, said UBS' Art Cashin, who runs the bank's floor
operations at the NYSE. "Immediate fear reaction," he wrote in a
note, "bids were canceled."
The market is concerned the disease could quickly be transmitted
across Asia as millions of Chinese travel for the annual Lunar New
Year holiday. A similar coronavirus led to the outbreak of severe
acute respiratory syndrome, or SARS, in late 2002 in southern
China, killing 774 people.
"The economic consequences could be extremely concerning," said
Rajiv Biswas, chief economist for the Asia-Pacific region at IHS
Markit. "China's international tourism has boomed, so the risks of
a global SARS-like virus epidemic spreading globally have become
even more severe."
Although a deadly virus is itself concerning, the equities
market was primed for a selloff after such a steady ascent, said
Naeem Aslam, chief market analyst at U.K. brokerage AvaTrade.
"The market was looking for an excuse to sell off," he said.
"Whenever you're sitting at record highs, retracement's always in
the air."
He said he was more interested in the message sent to the
Federal Reserve by President Trump from Davos. In his speech at the
World Economic Forum, the president pressured the Fed to cut rates
more than they already have.
"It's what the smart money is looking at," Mr. Aslam said. "Once
that message becomes very public and very clear, it means we will
have an enormous tailwind for stocks."
The message wasn't penetrating Tuesday. Shares of companies that
could be more directly affected by the virus' spread were mostly
lower. Wynn Resorts lost 5.7%, Las Vegas Sands dropped 5%, and MGM
Resorts fell 4.7%. Delta Air Lines fell 5.2%, American Airlines
lost 3.8%, and United Airlines Holdings dropped 5.1%.
Apart from the Chinese yuan, other Asian currencies also fell
against the U.S. dollar on fears that tourism and Asian economies
could be hurt if there is a widespread outbreak of the virus. The
South Korean won slid 0.7% against the U.S. dollar, and the Taiwan
dollar lost 0.2% against the greenback.
"Global asset markets have been pricing in this blue-sky
scenario: there wasn't a cloud in the sky," said Cliff Tan, East
Asian head of global markets research at Japanese bank MUFG. "Now
we have a cloud."
Among the biggest decliners was UBS Group, which retreated over
5% after the Swiss banking giant missed its key 2019 targets and
lowered its guidance.
Hong Kong's Hang Seng benchmark was the worst performer among
major Asian benchmarks, closing down 2.8% in its biggest decline in
more than five months. Adding to the gloom in Hong Kong, Moody's
Investors Service downgraded the city's credit rating. The ratings
firm blamed the government for failing to properly deal with seven
months of social unrest, which has driven the economy into
recession.
Within commodities, copper prices dropped as much as 1.4%,
putting the metal on track for the biggest fall in four months, as
investors weighed the impact of the virus on China's economy and
the typical slowdown in buying ahead of Lunar New Year holidays.
More recently, though, copper was down 0.5%.
Later in the day, a string of U.S. companies are scheduled to
report earnings including Netflix and International Business
Machines.
Caitlin Ostroff and Paul Vigna contributed to this article.
Write to Steven Russolillo at steven.russolillo@wsj.com and
Avantika Chilkoti at Avantika.Chilkoti@wsj.com
(END) Dow Jones Newswires
January 21, 2020 14:48 ET (19:48 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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