By Avantika Chilkoti , Gunjan Banerji and Chong Koh Ping
U.S. stocks extended a punishing selloff Friday, finishing their
worst week since the financial crisis with mounting investor unease
about the economic fallout from the coronavirus epidemic.
The Dow Jones Industrial Average shed 357 points after being
down more than 1,000 points before paring declines. The S&P 500
fell 0.8% and the tech-heavy Nasdaq Composite rallied to close
roughly flat in a volatile session.
Stock losses have been broad, with all 11 of the S&P 500's
sectors falling into negative territory for the year this week.
Additionally, more than 95% of S&P 50 stocks are down more than
10% from highs, according to Dow Jones Market Data.
For the week, all three indexes fell more than 10%, and from
their highs, all three have fallen at least 13%.
As investors have ditched stocks, they flocked to traditionally
safer assets like government bonds, pushing the yield on the
10-year Treasury note to a new record lows.
As markets swooned, Federal Reserve Chairman Jerome Powell
signaled Friday that the central bank was preparing to cut interest
rates if needed. Traders had started wagering that the Fed would
cut rates as soon as next month after it trimmed interest rates
three times last year.
The statement did little to boost investor confidence. Stocks
briefly pared losses after the statement but maintained steep
losses for the day.
The rush to sell stocks and other riskier investments such as
oil, has led 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.
"This has been really quick, really deep and, in some respects,
unbelievable," said Mark Stoeckle, chief executive officer of Adams
Funds, who said he's avoiding trading at the moment. "I believe the
market will continue to selloff."
The stock market plunge unleashed a frenzy of trading among
investors big and small, as the outlook for economic growth and
corporate profits this year darkened, helping fuel the swift
decline in stocks and bond yields. Stock trading volumes jumped to
a year-long high on Thursday while listed options trading soared to
the highest level on record.
About $18 billion left U.S. stock mutual and exchange-traded
funds during the week ending Wednesday, the biggest such outflow in
nine weeks, according to a Bank of America analysis of data from
EPFR Global. Meanwhile, the increased turbulence stoked a jump in
trading in retirement funds. Trading activity among investors at
large employers was about 11 times higher than normal on Thursday,
according to Alight Solutions, a rare occurrence since 2008.
The frenetic trading has 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: much remains unknown about how far the
virus will spread and the true harm it could do to economic growth
around the world. Some investors have warned that it is too soon to
bet on a swift rebound in the stock market and many are bracing for
more volatility ahead.
Traders and investors described a feeling of disbelief
throughout the week as there seemed to be no end in sight to the
selling in the stock market.
"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."
Stock markets in parts of the globe that are worst affected by
the virus were particularly hard hit. In Asia, Japan's Nikkei 225,
South Korea's Kospi and Australia's S&P/ASX 200 all closed down
more than 3%.
Meanwhile, the yield on the 10-year U.S. Treasury note dropped
to new all-time low of about 1.15% Friday as bond prices rallied.
German 10-year bunds yields fell further into negative territory as
other traditionally safe assets rallied, with the yen rallying
against the dollar.
The rush for traditionally safe assets comes as 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.
The spreading virus has led investors and analysts to grow more
pessimistic about their outlooks for the rest of the year, slashing
estimates for coming earnings results. Goldman Sachs Group said it
is now expecting 0% corporate earnings growth in 2020. Bank of
America Corp. lowered its estimate for global GDP growth because of
the coronavirus.
"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 out of their
equity positions or hedge portfolios to avoid even deeper
losses.
Investors are bracing for big swings 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.
"It's almost impossible for investors and analysts to make any
sensible predictions as to what might happen -- we're very much
flying blind," said Peter Dixon, an economist at Commerzbank.
The stock dive marks a startling shift from earlier in February,
when confidence in highflying technology companies helped push
major U.S. indexes to new heights. This week, shares of tech
companies within the S&P 500 are some of the biggest losers as
major indexes tumbled from records at a breathtaking pace.
Travel and leisure stocks also faced steep declines world-wide
as governments took fresh measures to contain the outbreak and
people continued to cancel travel plans. Shares in Royal Caribbean
Cruises were down 25% for the week and American Airlines Group
stock was on pace for its worst week on record.
Worries that the virus will prove a drag on global economic
growth 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.
As investors navigate this uncertainty, some have ramped up bets
that the Federal Reserve will slash rates again this year, after
cutting them three times in 2019.
Federal Reserve Bank of St. Louis President James Bullard said
Friday the coronavirus could lead the central bank to lower rates,
though so far he doesn't think trimming the cost of short-term
borrowing is needed.
Either way, 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 16:25 ET (21:25 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.