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 firstname.lastname@example.org
(END) Dow Jones Newswires
February 28, 2020 16:25 ET (21:25 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.