By Akane Otani, Anna Isaac and Joanne Chiu
U.S. stocks are headed toward their worst quarter since the
financial crisis, a stunning blow for the market that few investors
could have anticipated at the start of the year.
Markets were wobbly on the final day of the quarter. The Dow
Jones Industrial Average fell 250 points, or 1.1%, to 22077, while
the S&P 500 slipped 1.3% and the Nasdaq Composite lost
0.7%.
The relatively muted moves Tuesday stood in contrast to the
volatility over most of the past few months, which even veteran
traders on Wall Street have described as being one of the most
turbulent periods they could remember.
Just months ago, money managers were optimistic that the global
economy would stage a modest rebound. The U.S. and China had
appeared to make progress on a trade agreement, and central banks
around the world looked poised to keep interest rates steady for
the foreseeable future.
Then the coronavirus pandemic hit. What to many investors
initially appeared to be an issue that would primarily affect China
quickly became a force that brought business to a virtual
standstill around the world.
The subsequent selling was indiscriminate. Investors scrambled
to flee assets ranging from stocks to commodities to emerging
market debt, betting the global economy was headed for a sharp
downturn. The longest-ever bull market in U.S. history ended
abruptly, with declines so sharp that rarely-used mechanisms to
halt trading across the entire market were activated by exchanges
on multiple occasions.
The S&P 500 was down 19% for the quarter through Monday,
heading for its biggest quarterly decline since 2008. The Dow
industrials have fallen 22% through Monday, on track for their
worst decline since 1987.
Money managers and strategists are reluctant to call when the
worst of the selling might pass.
"We're really in unprecedented territory," said Shawn Snyder,
head of investment strategy at Citi Personal Wealth Management.
Over the past couple of weeks, Mr. Snyder said some clients have
inquired about whether stocks may be close to bottoming out, and
whether it may be time to put money back into the market. It's been
difficult for him and others to get a sense of the
answer--especially with the number of coronavirus cases in the U.S.
still rising day by day.
"There's still a huge amount of uncertainty right now. Is this a
V-shaped recovery, or is this something that lingers and lasts
longer than we thought?" he said.
Among the worst-hit groups in the rout of the first quarter was
shares of energy companies. Companies like Chevron and Exxon Mobil
have tumbled more than 35% for the year, hurt by expectations that
disruption to business and travel will take a toll on demand for
energy, as well as a global price war between major producers.
Bank stocks also reeled, with Goldman Sachs and JPMorgan both
down more than 30% apiece for the year. A series of emergency
interest-rate cuts have helped stabilize the financial system but
also further crimped banks' net-interest margins, a measure of
lending profitability.
Elsewhere, the pan-continental Stoxx Europe 600 ended Tuesday
with its biggest quarterly loss since 2002. Japan's Nikkei Stock
Average suffered its biggest quarterly loss since 2008.
Analysts say the erosion of value in financial markets in recent
weeks was exacerbated by factors including hedge funds' increased
use of computer-driven trading models, investors urgently unwinding
risky bets made with borrowed funds and big asset managers' push to
divest even the safest assets and hold more cash.
Central banks led by the Federal Reserve have been forced into
emergency interventions to boost funding in credit markets and
ensure an adequate supply of U.S. dollars to calm the worst of the
anxiety.
Some of those measures have helped reassure investors. But
equity markets may see a return of volatility when businesses start
reporting quarterly performance and earnings in a few weeks, said
Salman Baig, a portfolio manager at Swiss investment firm
Unigestion. Economic activity in many countries has ground to a
halt as governments have placed restrictions on air travel and work
to limit the contagion.
"The figures for the macroeconomic picture show very significant
contractions. It's not going to be permanent, but it will be
severe," Mr. Baig said.
On Tuesday, signs of a rebound in the Chinese economy helped
calm market sentiment. An official gauge of China's manufacturing
activity climbed sharply in March as factories resumed work
following months of a near-total shutdown, though economists warned
that business activity remains far from normal.
There are also tentative signs that new infections in Italy
might be slowing: 4,050 cases were confirmed Monday, compared with
5,217 Sunday and 5,974 Saturday, according to data compiled by
Johns Hopkins University.
But analysts cautioned that the global economy is still headed
for a sharp contraction in the first half of the year.
"The hope is that in the second half of the year, the virus may
be contained and it can recover. If the disruption continues in the
back end of the year, that's a different story," said Lee Hardman,
a currency analyst at MUFG Bank in London.
Many investors are in a wait-and-see mode, as the U.S., Europe
and many Asian countries have rolled out very sizable fiscal
stimulus packages, said Tai Hui, chief market strategist for the
Asia-Pacific region at J.P. Morgan Asset Management.
"Whether we need more depends on whether the pandemic will force
a longer period of social distancing and lockdown," Mr. Hui
said.
Write to Akane Otani at akane.otani@wsj.com, Anna Isaac at
anna.isaac@wsj.com and Joanne Chiu at joanne.chiu@wsj.com
(END) Dow Jones Newswires
March 31, 2020 13:47 ET (17:47 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.