By Alexander Osipovich, Avantika Chilkoti and Frances Yoon
Stocks fell Wednesday after President Trump issued a stark new
warning on the spread of the novel coronavirus, putting investors
on edge about the damage that the pandemic could inflict on the
world's largest economy.
The Dow Jones Industrial Average dropped 930 points, or 4.2%, in
afternoon trading, a day after the index closed out its worst
quarter since 1987. The S&P 500 fell 4.4%, while the Nasdaq
Composite was down 4.2%.
The White House warned on Tuesday that the U.S. could face as
many as 240,000 deaths, with Mr. Trump asking Americans to brace
for an unprecedented crisis in the days ahead. The U.S. has more
confirmed cases than any other country, with more than 200,000
infections. Projections from the University of Washington show the
illness could result in 2,214 deaths a day at the peak in two
weeks.
"We're slowly peering through the fog and trying to see how bad
things will become, but essentially we are flying blind," said
Peter Dixon, a senior economist at Commerzbank. "It's very clear
this is going to be the biggest sudden stop in measured history:
The economy is just going to hit the buffers."
Overseas markets also fell. The pan-continental Stoxx Europe 600
index retreated 2.9%. In Asia, Japan's Nikkei 225 lost 4.5% and
Hong Kong's Hang Seng dropped 2.2%.
As investors turned to assets that are perceived to be the
safest, the yield on the 10-year U.S. Treasury note slipped to
0.627%, from 0.691% Tuesday. Yields drop as bond prices climb.
All 11 sectors of the S&P 500 were down on Wednesday, with
real-estate companies, utilities and financials among the worst
decliners. JPMorgan Chase shares fell 6.2%. Banks have been
squeezed by both the decline in business activity and the Federal
Reserve slashing interest rates to near zero.
Philip Blancato, CEO of Ladenburg Thalmann Asset Management,
said the market had entered a new phase after the initial shock of
the pandemic triggered a precipitous drop in major stock indexes.
Stocks are cheap enough now that investors are eyeing opportunities
and hoping the market will bottom out once measures to battle the
virus show signs of effectiveness, he said.
"Stocks are now inexpensive," Mr. Blancato said. "If they're
cheap, that creates a floor in the market for companies with good
fundamentals."
Still, major U.S. indexes are on track for two consecutive days
of declines, a reversal from last week when the S&P 500 rallied
more than 10% in its best week in years. Fears that the pandemic
could worsen are driving fund managers to hold cash instead of
buying stocks, said Randy Frederick, vice president of trading and
derivatives at Schwab Center for Financial Research.
"There's a higher demand right now for everyone to stay liquid
and have a higher cash allocation," Mr. Frederick said. "There's a
fair amount of pessimism still out there."
In corporate news, Marriott International shares dropped 8.3%, a
day after the hotel chain said it is investigating a data breach
that exposed up to 5.2 million customers' personal information.
HP shares tumbled 14% after Xerox Holdings called off its
hostile bid to take over the PC and desktop-printer maker, saying
the pandemic had undermined its ability to carry out the deal.
Xerox shares fell 6.8%.
Futures on Brent crude, the global oil benchmark, dropped $1.61
a barrel, or 6.1%, to $24.74 after an agreement between major
oil-producing nations limiting the output lapsed overnight. Saudi
Arabia is preparing to flood oil markets as the kingdom forges
ahead in a price war with Russia. Oil prices have tumbled more than
60% so far this year.
The WSJ Dollar Index, which tracks the greenback against a
basket of currencies, gained 0.7% after the Fed took fresh steps to
alleviate stresses in currency markets. On Tuesday, the U.S.
central bank said it would launch a temporary lending facility that
would allow foreign central banks to convert their holdings of
Treasury securities into dollars.
A series of business surveys released Wednesday showed factories
across Asia and Europe cut output and jobs at the fastest pace
since the global financial crisis. The figures painted an almost
uniform picture of sharply declining production, falling new orders
and contracting payrolls. The main exception was China, which saw a
slight rebound in activity as its economy began to thaw out, having
been the first frozen.
In the U.S., fresh data showed the factory sector contracted in
March as the coronavirus disrupted supply chains and shut down
businesses, though not as badly as economists had feared.
The Institute for Supply Management said its manufacturing index
fell to 49.1 in March from 50.1 in February. Economists had
expected a reading of 44.5. Any number above 50 indicates an
expansion of activity across the manufacturing sector, while
readings below 50 signal a contraction.
U.S. lawmakers have passed three major pieces of legislation to
keep the virus outbreak from throwing the economy into the deepest
downturn since the Great Depression, while the Fed has slashed its
benchmark interest rate to near zero.
"In the U.S., we're at the beginning of a downturn," said Steven
Englander, global head of G-10 foreign-exchange research and North
America macro strategy at Standard Chartered Bank. "We're likely to
see more unemployment, and the early bottom could come in May, but
that is very speculative. For that to happen, we need a lot of good
luck and serious implementation of economic and health-care
policy."
While stimulus packages are good for the economy and would help
American employees get through the next two months, there might be
a need for "trillions more," Mr. Englander said. On Tuesday, Mr.
Trump called for a new infrastructure-focused spending bill worth
$2 trillion.
Write to Alexander Osipovich at
alexander.osipovich@dowjones.com, Avantika Chilkoti at
Avantika.Chilkoti@wsj.com and Frances Yoon at
frances.yoon@wsj.com
(END) Dow Jones Newswires
April 01, 2020 15:34 ET (19:34 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.