By Gunjan Banerji and Caitlin Ostroff
Stocks and Treasury yields dropped Friday and precious metals
rallied on early signs that the coronavirus outbreak is curtailing
economic growth.
The S&P 500 index fell 0.9% in morning trading. The Dow
Jones Industrial Average lost 240 points, or about 0.8%. The
tech-heavy Nasdaq Composite slipped 1.3%.
U.S. stocks are on track for declines this week, while
traditionally safer assets like gold and government bonds are
headed toward gains, highlighting concerns that the virus could
crimp global growth. Gold prices are hovering near the highest
levels of the past seven years, while the intraday yield on the
benchmark 30-year Treasury yield dropped to a record low.
The concurrent gains in precious metals and government bonds
this year highlight the jitters that have percolated markets even
as major U.S. indexes are sitting close to record highs. Typically,
investors ditch haven assets like gold and government bonds as
stocks crest to fresh highs. This year, they have bought risky and
safe assets alike as they have navigated a murky economic
outlook.
Some analysts have attributed the rush for haven assets to the
viral outbreak, which has sickened tens of thousands of people and
led to shutdown businesses in one of the biggest economies in the
world.
"It can really slow down many areas of the economy," said Dev
Kantesaria, founder of Valley Forge Capital Management, of the
virus.
Meanwhile, lackluster economic data that has trickled in has
added to worries that the virus will hamper growth. This anxiety
was evident in the market for government bonds Friday, where yields
dropped sharply shortly after IHS Markit's flash reading for an
economic indicator measuring manufacturing and services business
activity fell to its lowest level in more than six years.
Additionally, new data showed that sales of previously owned
U.S. homes sputtered in January. Existing home sales decreased 1.3%
in January from December.
The yield on the 10-year Treasury note fell sharply to 1.461% in
early trading Friday, from 1.524% Thursday as bond prices rose. The
yield on the 30-year Treasury note fell to 1.905%, according to
Tradeweb, from 1.971% on Thursday.
The yield on 10-year Treasurys has traded below the three-month
yield since Tuesday as investors seek longer-duration U.S. bonds as
a safe investment amid coronavirus fears, said Andrey Kuznetsov, a
senior credit portfolio manager at Hermes Investment
Management.
"If we are in an environment when we will see a
lower-than-expected growth on the back of coronavirus, this will
increase demand for low-risk assets," he said.
Gold prices rose about 1.6%, continuing a rally that has sent
the precious metal to seven-year peaks.
The worries about the coronavirus come as manufacturing data has
disappointed investors. Data from IHS Markit Ltd. showed that new
orders received by private sector firms fell for the first time
since October 2009, when data collection began. Its U.S. composite
purchasing managers index fell to its lowest level since 2013.
Preliminary figures for Japan's February manufacturing activity,
meanwhile, showed the sharpest contraction in more than seven
years, Deutsche Bank said. Data on the country's services sector
fell to the lowest since April 2014 as the spread of coronavirus
hurt tourism, according to IHS Markit.
While German figures for manufacturing showed slight
improvement, it may be still too early to capture the impact of the
coronavirus, said Aila Mihr, a senior analyst at Danske Bank
Research. New export orders pointing to how many German goods are
being purchased from countries including China remained weak.
The figures also showed longer delivery times from suppliers to
Germany. While this usually indicates more demand for goods,
investors see it now as a result of the shutdown in Chinese supply
chains and an indication that the coronavirus is weighing on the
German economy, she said.
"In the grand scheme of things, we kind of read them as the calm
before the storm," Ms. Mihr said. "We don't think we have seen the
worst yet."
More than 75,000 people have been diagnosed with coronavirus,
and over 2,000 have died globally. South Korea reported its first
fatality, while two patients in Iran also died and confirmed cases
began to climb in Beijing.
Despite Friday's declines, the stock market has largely remained
resilient in 2020 -- powered higher by shares of technology
heavyweights -- even as traditionally safer bets have soared.
Shares of tech companies have outperformed the S&P 500 this
year, rising 8.5% versus a 3.3% increase for the broad index. It's
a sign that investors are hungry for hungry for companies with a
high potential for profits, especially as the latest earnings
season has revealed roughly flat profits.
"People are desperately looking for organic growth," said Mr.
Kantesaria.
Fed governor Lael Brainard, a top central bank official, said in
a speech that interest rates will need to remain at historically
low levels for a lengthy period to return inflation to the Fed's 2%
inflation goal. The Federal Reserve cut interest rates three times
last year, helping boost stocks and government bonds.
Investors have also been parsing individual earnings releases in
recent days. Shares of Deere rose 7.9% after the tractor and
construction machinery maker posted earnings that beat expectations
for the first quarter.
Sprint gained about 5% after the wireless carrier and T-Mobile
US agreed on new terms for their merger.
Dropbox climbed 21.5% after the file-sharing service reported
quarterly results that beat Wall Street's expectations.
Amrith Ramkumar contributed to this article.
Write to Gunjan Banerji at Gunjan.Banerji@wsj.com and Caitlin
Ostroff at caitlin.ostroff@wsj.com
(END) Dow Jones Newswires
February 21, 2020 11:30 ET (16:30 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.