The Dow Jones Industrial Average slumped more than 1,000 points Monday in the worst day for the stock market in two years as expanding outbreaks of the coronavirus forced investors to reconsider the seriousness of the threat to economies in Europe and the United States.
The slump in U.S. indexes followed a sell-off in markets overseas as a surge in cases of the disease in South Korea and Europe rattled investors.
Traders sought safety in U.S. government bonds, gold and high-dividend stocks like utilities and real estate. The yield on the 10-year Treasury fell to the lowest level in more than three years.
Technology stocks accounted for much of the broad market slide, which wiped out all of the Dow's and S&P 500's gains for the year.
[Gallery not loading above? Click here for more photos » arkansasonline.com/225stock/]
The Dow lost 1,031.61 points, or 3.6%, to 27,960.80. At its low point, it was down 1,079 points.
The S&P 500 index skidded 111.86 points, or 3.4%, to 3,225.89. The Nasdaq dropped 355.31 points, or 3.7%, to 9,221.28, it's biggest loss since December 2018.
The Russell 2000 index of smaller company stocks gave up 50.50 points, or 3%, to 1,628.10.
Investors looking for safe harbors bid up prices for U.S. government bonds and gold. The yield on the 10-year Treasury note fell sharply, to 1.37% from 1.47% late Friday. It was at 1.90% at the start of the year. Gold prices jumped 1.7%.
More than 79,000 people worldwide have been infected by the new coronavirus. China, where the virus originated, still has the majority of cases and deaths.
"Stock markets around the world are beginning to price in what bond markets have been telling us for weeks -- that global growth is likely to be impacted in a meaningful way due to fears of the coronavirus," said Chris Zaccarelli, chief investment officer for Independent Advisor Alliance.
The consensus estimate for first quarter growth in the United States has slipped from 1.7% at the end of 2019 to 1.5% on Monday, according to data from FactSet. Economists at Goldman Sachs, who were expecting first quarter domestic growth of 2% as recently as late January, have been steadily lowering their estimate, which fell to 1.2% on Monday.
"The risks are clearly skewed to the downside until the outbreak is contained," they wrote.
BROKEN SUPPLY CHAINS
Investors have been jumpy since the start of the crisis in January because of the role that China's factories play in global business.
Those factories are vital links in global supply chains, taking in shipments of raw materials and sending out everything from clothing to iPhones to auto parts. Hyundai, the world's fifth-largest automaker, cited a shortage of Chinese-made parts when it temporarily stopped production lines earlier this month at factories in South Korea -- and that was before a surge in coronavirus cases in that country put officials on high alert.
China is also a huge consumer market: When Apple cut its sales expectations for the quarter last week, it cited both production problems linked to the outbreak and reduced demand in the country, where it had closed dozens of stores.
The viral outbreak threatens to crimp global economic growth and hurt profits and revenue for a wide range of businesses. Nike has already warned about a hit to its bottom lines. Airlines and other companies that depend on travelers are facing pain from canceled plans and shuttered destinations.
Technology companies were among the worst hit by the sell-off. Apple, which depends on China for a lot of business, slid 4.8%. Microsoft dropped 4.3%. Banks were also big losers. JPMorgan Chase fell 2.7% and Bank of America slid 4.7%.
Airlines and cruise ship operators also slumped. American Airlines lost 8.5%, Delta Air Lines dropped 6.3%, Carnival skidded 9.4% and Royal Caribbean Cruises tumbled 9%.
Gilead Sciences climbed 4.6% and was among the few bright spots. The biotechnology company is testing a potential drug to treat the new coronavirus. Bleach-maker Clorox was also a standout, rising 1.5%.
Utilities and real estate companies held up better than most sectors. Investors tend to favor those industries, which carry high dividends and hold up relatively well during periods of turmoil.
The rotation into defensive sectors has made utilities and real estate the biggest gainers this year, while technology stocks have lost ground.
"The yields have been moving lower all year, so that's providing a tail wind for utilities, for real estate," said Willie Delwiche, investment strategist at Baird. "In the face of this heightened uncertainty, especially if it's centered overseas, tech is going to bear some of the brunt of that because it's been so popular, because it's done so well, and because it has so much exposure to Asia."
BEZOS LOSES $4.8B
The world's 500 richest people lost a combined $139 billion Monday as markets buckled. It's the biggest wealth drop for the group since the Bloomberg Billionaires Index began tracking that figure in October 2016.
Bernard Arnault, chairman of luxury-goods maker LVMH, and Amazon.com Inc. founder Jeff Bezos led the declines, with each losing more than $4.8 billion. Amancio Ortega, chief executive officer of Zara parent Inditex SA, tumbled $4 billion, and the fortunes of everyone else in the top 10 slid by at least $2.3 billion.
In the eyes of some analysts, Monday's plummet for stocks means they're just catching up to the bond market, where fear has been dominant for months.
Traders are increasingly certain that the Federal Reserve will cut interest rates at least once in 2020 to help prop up the economy. They're pricing in a nearly 95% probability of a cut this year, according to CME Group. A month ago, they saw only a 68% probability.
But central bank chiefs may be ill-equipped to battle the economic consequences of the flu-like illness. Interest rates are already in negative territory in Europe and near historic lows in the United States. And making credit less expensive -- the Fed's standard tool for combating a slump -- may offset some of the financial upheaval, but will do little to remedy broken supply chains or ease worker and consumer fears of contagion.
"There's just growing angst in the investor community that this thing is more serious than we realized," said Chris Meekins, an analyst with Raymond James and former Trump administration preparedness official.
"It may not be an actual pandemic yet, but it's an economic pandemic," said Diane Swonk, chief economist for Grant Thornton. "It's global in scope and disrupting activity around the world."
Monday's drop across markets for stocks, bonds and commodities suggests investors do not believe some forecasts are pessimistic enough.
Crude-oil prices slid 3.7%. Aside from air travel, the virus poses an economic threat to global shipping.
Benchmark crude oil fell $1.95 to settle at $51.43 a barrel. Brent crude oil, the international standard, dropped $2.20 to close at $56.30 a barrel.
Wholesale gasoline fell 4 cents to $1.61 per gallon, heating oil declined 8 cents to $1.61 per gallon and natural gas fell 8 cents to $1.83 per 1,000 cubic feet.
Gold rose $27.80 to $1,672.40 per ounce, silver rose 35 cents to $18.87 per ounce and copper fell 3 cents to $2.59 per pound.
The dollar fell to 110.74 Japanese yen from 111.62 yen on Friday. The euro weakened to $1.0842 from $1.0858.
Germany's DAX slid 4% and Italy's benchmark index dropped 5.4%. South Korea's Kospi shed 3.9% and markets in Asia fell broadly.
Information for this article was contributed by Alex Veiga, Damian J. Troise and Stan Choe of The Associated Press; by Sophie Alexander, Steven Crabill and Jack Witzig of Bloomberg News; by Matt Phillips of The New York Times; and by David J. Lynch, Rachel Siegel and Thomas Heath of The Washington Post.
A Section on 02/25/2020