By Akane Otani, Anna Isaac and Joanne Chiu 

U.S. stocks stumbled to end 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 extended losses in the afternoon, falling 413 points, or 1.9%, to 21914, while the S&P 500 slipped 1.6% and the Nasdaq Composite lost 1%.

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 20% for the quarter, its biggest quarterly decline since 2008. The Dow industrials fell 23% through Tuesday, 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 16:18 ET (20:18 GMT)

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