By Akane Otani, Anna Isaac and Joanne Chiu
U.S. stocks closed out their worst quarter since the depths of
the financial crisis, a stunning blow for the market that few
investors could have anticipated at the start of the year.
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 finished Tuesday down 42.06 points, or 1.6%, to
2584.59, posting a 20% loss for the quarter -- its biggest
quarterly decline since 2008. The Dow Jones Industrial Average fell
410.32 points, or 1.8%, to 21917.16 and lost 23% for the quarter,
its worst showing since 1987. The Nasdaq Composite slid 74.05
points, or 1%, to 7700.10 and finished the quarter down 14%.
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 has
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.
Volatility has been relentless. The S&P 500's absolute
average percentage change in March was 5% -- surpassing a previous
all-time high set during the Great Depression, according to Dow
Jones Market Data.
Among the worst-hit groups in the first-quarter rout was shares
of energy companies. Exxon Mobil and Chevron have tumbled 46% and
40%, respectively, for the year, hurt by expectations that
disruption to business and travel will take a toll on demand for
energy. Oil prices finished the quarter with their worst losses
ever.
Bank stocks also reeled, with Goldman Sachs and JPMorgan Chase
both down more than 30% for the year. A series of emergency
interest-rate cuts by the Federal Reserve 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 suffered its
biggest quarterly loss since 2002. Japan's Nikkei Stock Average
logged the steepest decline 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 Fed 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.
Signs of anxiety also lingered in markets, boosting the value of
assets like U.S. Treasurys and gold, which tend to do well when
investors are uncertain about the economic outlook.
The yield on the benchmark 10-year Treasury note, used as a
benchmark for everything from mortgage rates to student loans, fell
1.218 percentage points to 0.691% over the course of quarter. That
marked its steepest one-quarter decline since 2011.
Gold rallied, with the price of the precious metal finishing the
first quarter up 4.2% to $1,583.40 an ounce for its sixth
consecutive quarter of gains.
Meanwhile, traders bet on more swings ahead. The Cboe Volatility
Index, which tracks expectations for stock market volatility,
soared 289% for the year through Tuesday -- posting its biggest
quarterly gain ever, according to data going back to 1990.
"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.
Traders have noted some positive signs coming out of Asia. On
Tuesday, data showed 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.
Still, experts cautioned that the global economy is still headed
for a sharp contraction in the first half of the year.
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 17:01 ET (21:01 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.