By Caitlin Ostroff and Akane Otani
A rout in global financial markets deepened Tuesday, sending the Dow Jones Industrial Average down as many as 403 points and Treasury yields sliding to fresh lows.
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.
The Dow Jones Industrial Average was down 273 points, or 1%, to 27685, after being down as much as 403 points in late morning trading. The S&P 500 and Nasdaq Composite lost 0.9%.
Meanwhile, the yield on the benchmark 10-year U.S. Treasury note--used as a reference rate for everything from mortgages to student loans--was at 1.330% after briefly falling below a record intraday low of 1.325%.
"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 1%. 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 17% 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 2.4% to bring its year-to-date gain to 86%.
"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.
Elsewhere, the Stoxx Europe 600 traded down 1.8% after having fallen more than 3% Monday.
Trading in Asia was mixed Tuesday.
South Korea's Kospi closed 1.2% higher, while China's Shanghai Composite Index ended the day down 0.6%. 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 Caitlin Ostroff at firstname.lastname@example.org and Akane Otani at email@example.com
(END) Dow Jones Newswires
February 25, 2020 12:10 ET (17:10 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.