Global stocks, U.S. government-bond yields and oil prices tumbled Thursday, extending their recent losses as investors braced for a drop in business activity and corporate earnings following the spread of the coronavirus.
The Dow Jones Industrial Average fell 1.8%, about 484 points, and the Nasdaq Composite shed 2%, putting both indexes on track to close 10% below their February highs, a decline known as a correction. The S&P 500 dropped 1.7%, paring its losses from earlier in the session.
“Obviously it’s a bloodbath,” said David Bahnsen, chief investment officer of The Bahnsen Group, a wealth-management firm. “When you get into a free-fall mode, there’s really little that can be done but wait for some sort of footing to be found.”
Investors have grown increasingly worried this week about the potential economic impact as the virus emerges in new locations. Some U.S. companies say they could lose as much as half their annual revenue from China if the coronavirus epidemic extends through the summer. American businesses will generate no earnings growth in 2020 if the virus becomes widespread, Goldman Sachs Group’s equity analysts warned on Thursday.
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“We have to brace ourselves for wave after wave of earnings downgrades,” said Paul O’Connor, head of multiasset at Janus Henderson Investors. “The globalization of the virus extinguishes confidence in the V-shaped recovery that was the view last week.”
With Thursday’s losses, only two sectors of the S&P 500—the real estate and utility groups—were sitting in positive territory for the year. The stock index as a whole was down 5.2% for 2020.
European indexes also dropped, with the Stoxx Europe 600 tumbling 3.5%. In Asia, Japan’s Nikkei 225 closed 2.1% lower, while South Korea’s Kospi declined 1%.
Investors continued to seek out the safety of government-bond holdings. The yield on the benchmark 10-year U.S. Treasury, which closed at a record 1.310% on Wednesday, dropped to 1.271% Thursday, according to Tradeweb. Yields move inversely to bond prices.
A key measure of turbulence in U.S. stocks also rose Thursday, with the Cboe Volatility Index, or VIX, jumping to 32.37, its highest level since December 2018. The options-based gauge tends to rise when markets fall and investors reach for insurance-like contracts to protect their portfolios.
“The global fear factor has become stronger due to the warnings coming out from the U.S.,” said Song Seng Wun of CIMB Private Banking in Singapore. “And as recession risks grow, the markets have become more jittery.”
Brent crude, the global oil benchmark, fell 2.9% to $51.28 a barrel, reflecting anxiety about the demand for energy if growth prospects sour. Gold, considered a haven asset during times of turmoil in markets, rose 0.4%.
More than 82,000 people have been infected by the virus and the death toll stands at more than 2,800 globally. On Wednesday, American authorities said a patient in California might be the first U.S. coronavirus case to be diagnosed without a clear explanation for how the disease was transmitted.
“Everyone is now trying to assess what the economic impact will be,” said Neil Dwane, global strategist at Allianz Global Investors. “The U.S. is looking at Europe and Japan as evidence of how the world is responding.”
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