By Chong Koh Ping, Anna Isaac and Caitlin McCabe
The Dow Jones Industrial Average dropped about 900 points Monday, spurred by the emergence of fresh coronavirus outbreaks in several countries outside China.
Investors also stepped up their flight to haven assets, pushing gold prices up 1.6% to $1,674.60 a troy ounce. Increased demand for U.S. government bonds sent the yield on the benchmark 10-year note down to 1.367%, approaching the all-time closing low of 1.364% according to Tradeweb.
The blue-chip index fell 923 points, or 3.2%, in late morning trading, on track for a third consecutive session of losses. The drop erased the Dow's gains for the year and puts it on track for its biggest one-day decline in six months.
The S&P 500 declined 3.1%, with all 11 sectors posting declines. The tech-heavy Nasdaq Composite suffered the steepest losses, dropping 3.6%. Those indexes are hanging on to gains of 0.5% and 3.3%, respectively, in 2020.
Energy, technology and consumer-discretionary stocks posted the biggest declines in the S&P 500, all falling about 3%.
Oil company Hess Graphics slid 6.9%, while graphics chip maker Advanced Micro Devices fell 6.2% and department-store operator Macy's declined 4.6%.
Airlines and travel-related stocks were hit particularly hard. American Airlines dropped 8.5%, Norwegian Cruise Line Holdings dropped 8.4% and Booking Holdings--the operator of Priceline and Kayak--declined 6.7%.
"The rally of haven assets such as gold reflects surging demand for safety during a time of uncertainty," said CMC Markets analyst Margaret Yang. "Things will probably get worse before it gets better."
Meanwhile, Brent crude dropped 5.3% to $54.86 a barrel. Oil prices have declined in recent weeks on investors' concerns that the viral outbreak would sap demand for crude.
After weeks of fresh records in U.S. indexes, market gains started to unravel last week, as it became increasingly clear that the coronavirus outbreak will disrupt global supply chains more than originally anticipated. Those concerns worsened over the weekend after a surge of cases were reported in South Korea, Iran and Italy, prompting school closures within parts of all three countries as authorities attempt to keep the recent outbreaks under control.
So far in Italy, six people have died from the illness, making it the world's third-biggest national outbreak after China and South Korea. More than 50,000 people remain under quarantine in the country.
In an update Monday, the World Health Organization said China has reported a total of 77,362 cases of the coronavirus, including 2,618 deaths. The Geneva-based organization said that the number of cases is declining in China, even as the number of cases have increased elsewhere. Outside of China, the WHO said, there are 2074 cases in 28 countries, and 23 deaths.
The rapid increase of cases outside of China spooked investors Monday, portfolio managers said, especially as questions linger about how exactly the virus is spread. Infections are now emerging in people who haven't traveled to China or come into contact with confirmed cases.
"I think [this weekend] opened the eyes of the investment community and it definitely opened the eyes of the World Health Organization," said Carter Henderson, a portfolio manager at Pittsburgh-based Fort Pitt Capital Group.
The first signs of fraying in the tech sector emerged last week, after Apple became the first major U.S. company to say it won't meet revenue projections for the quarter due to the epidemic. Several other companies, including Procter & Gamble and Royal Caribbean Cruises, followed suit, warning that they expected the epidemic to impact their financial performances.
"Clearly this selloff today is pretty dramatic and there's no question that the selloff in the U.S. was precipitated by what's going on in Europe," said Chris Zaccarelli, chief investment officer for Charlotte-based Independent Advisor Alliance. "Fear has gripped the continent."
The Stoxx Europe 600 index retreated 3.8%. Germany's DAX, the benchmark for Europe's industrial powerhouse, dropped 4%.
The falls came a day after the Group of 20 major economies warned that the coronavirus outbreak poses a serious risk to the global economy. And within China, officials and economists are warning that an extended Chinese shutdown could cripple global manufacturing and cost the world up to $1 trillion in lost output. The contagion, which has curtailed Chinese manufacturing, exports and consumption this year, is threatening to damp global growth as factories world-wide depend on a supply chain tethered to China for many intermediate and finished goods.
The Cboe Volatility Index, or VIX, jumped to 23.92 in early trading, on track to close at its highest level since early August. The options-based gauge tends to rise when markets fall and investors reach for insurance-like contracts to protect their portfolios. Near-dated futures contracts tracking the index also jumped above those expiring in later months, a sign that many investors are bracing for more volatility.
"Not only are Chinese industrial hubs in lockdown, and derailing global supply chains, you now have the virus spreading very close to industrial hubs in Europe," said Florian Hense, European economist at Berenberg Bank.
"Northern Italy, Switzerland, Southern Germany, and Austria form a big supranational industrial hub," Mr. Hense said. "Should a lockdown in small areas of Italy be widened, there would be far more significant disruption for manufactures like German car makers in Europe."
In South Korea, which reported its seventh death from the coronavirus, the benchmark Korea Composite Stock Price Index, or Kospi, closed down 3.9%. That was its biggest one-day fall since 2018, according to FactSet. South Korea on Sunday raised its infectious-disease alert to red -- the highest level -- for the first time since the H1N1 swine flu outbreak in 2009.
"This could serve as a 'wake-up' call for Japan and other Asian economies, which are vulnerable against the impact of the virus," said Ms. Yang. "This will also put the hosting of Tokyo Summer Olympic Games under scrutiny, as Japan now has the highest number of infections outside of China alongside an aging population."
Elsewhere in Asia, stock benchmarks in Hong Kong and Singapore fell 1.8% and 1.2%, respectively. In Australia the S&P/ASX 200 index declined 2.3%. Markets in Japan were closed Monday.
Write to Anna Isaac at email@example.com
(END) Dow Jones Newswires
February 24, 2020 12:27 ET (17:27 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.