By Avantika Chilkoti , Gunjan Banerji and Chong Koh Ping
Stock markets around the world extended a punishing selloff
Friday, dragged toward their worst week since the financial crisis
by mounting investor unease about the economic fallout from the
coronavirus epidemic.
The Dow Jones Industrial Average was recently down about 900
points, or about 3.5%. The S&P 500 fell 3% and the tech-heavy
Nasdaq Composite lost about 2.3% in a volatile session.
Losses have been broad, with all 11 of the S&P 500's sectors
falling into negative territory for the year this week. As
investors 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.
Investors have rushed to sell stocks and other riskier
investments such as oil, leading 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 plunge unleashed a frenzy of trading among investors big and
small, as t he 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. The Stoxx Europe 600 fell
3.5%. In Asia, Japan's Nikkei 225, South Korea's Kospi and
Australia's S&P/ASX 200 all closed down more than 3%.
The yield on the 10-year U.S. Treasury note dropped to new
all-time low Friday as bond prices rallied, with the yield on the
note hitting 1.157%, according to Tradeweb. German 10-year bunds
yielded minus 0.592%, down from minus 0.540% Thursday. Other
traditionally safe assets also rallied, with the yen gaining 1.2%
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 upcoming earnings results. Goldman Sachs Group said
it is now expecting 0% corporate earnings growth in 2020.
Meanwhile, Bank of America Corp. lowered its estimate for global
GDP growth because of the coronavirus. The Chicago Business
Barometer rose in February but still pointed to business activity
contracting.
"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 more volatility 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. Investors kept betting that the
market darlings would continue rising. This week, shares of tech
companies within the S&P 500 are some of the biggest losers and
the Dow Jones Industrial Average was on track for its worst month
since 2008 as major indexes tumbled from records at a breathtaking
pace.
Travel and leisure stocks also faced steep declines worldwide 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
down about 28%.
Worries that the virus will prove a drag on global economic
growth also 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.
Governments across the globe are taking action to stem the
spread of the virus and support the economy. Some investors 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
chong.kohping@wsj.com
(END) Dow Jones Newswires
February 28, 2020 14:02 ET (19:02 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.