Financial markets reeled again Wednesday as the coronavirus continued its relentless spread, governments ramped up efforts to contain it and investors waited for lawmakers in Washington to take action on proposals to bolster the American economy.
Nearly every asset class -- stocks, bonds, gold, oil -- came under siege as investors fled to the safety of cash. The weeks-long panic has hollowed out a big chunk of the stock gains from the bull market and erased virtually all of the equity advances under the Trump presidency.
Stocks did recoup some losses before the close of trading Wednesday, as the Senate began to vote on a bill to provide sick leave, jobless benefits, free coronavirus testing and other aid. President Donald Trump signed it later in the day. But when all was said and done, the S&P 500 fell about 5%, stocks in Europe were sharply lower and oil prices cratered.
The S&P 500 index fell 131.09 points, to 2,398.10. The Dow Jones Industrial Average fell 1,338.46 points, or 6.3%, to 19,898.92. The Nasdaq fell 344.94 points, or 4.7%, to 6,989.84, and the Russell 2000 index of smaller company stocks dropped 115.34 points, or 10.4%, to 991.16.
[CORONAVIRUS: Click here for our complete coverage » arkansasonline.com/coronavirus]
The selling reflected another extreme swing in sentiment on Wall Street. Stocks jumped Tuesday as the White House called for urgent action to pump $1 trillion into the economy. After markets closed Wednesday, the Senate cleared the second major bill responding to the coronavirus pandemic and White House economic advise Larry Kudlow said the government might take an equity position as part of an aid package.
"The volatility is going to be here to stay," said Brian Nick, chief investment strategist at Nuveen. "It's about the virus and not the economic response."
The renewed selling showed how fragile any gains have become as long as the virus continues to spread and the number of cases continues to grow at a staggering rate.
The turmoil Wednesday was evident in other markets as well. The British pound fell to its lowest level in 35 years against the American dollar.
The American oil benchmark, West Texas Intermediate, dropped 24% to just over $21 a barrel, the lowest price in almost 20 years. The global Brent benchmark fell to just above $25 a barrel, a level just below January 2016. Oil prices are more than 60% below where they were at the beginning of the year.
Even prices for longer-term U.S. Treasury notes, which are seen as some of the safest possible investments, fell as investors sold what they could to raise cash. Gold also fell.
"They're just saying, 'I may take some losses here, but if we have cash we can deploy it when we know more,'" said J.J. Kinahan, chief strategist with TD Ameritrade. "The problem for the market really is we just don't know anymore. And until we really know where things are at, you may see people who just want to have as much cash as possible."
Indeed, markets for U.S. government and corporate debt strained to handle a flood of sell orders. Investors sold 10-year Treasury securities to raise cash, sending prices down and yields up to 1.2%. The 10-year yield has more than doubled since March 9, when stocks and bonds began plunging in tandem. Bond prices and yields move in opposite directions.
Sovereign debt tumbled around the world, and municipal bonds extended the deepest rout since 1987 as markets braced for the potential flood of spending.
Markets have been incredibly volatile for weeks as Wall Street and the White House acknowledge the rising likelihood that the pandemic will cause a recession. The typical day this month has seen the stock market swing up or down by 4.9%. Over the past decade, it was just 0.4%.
Delta Air Lines said Wednesday that it's parking at least half of its planes to catch up with a plummeting drop in travel. Detroit's big three automakers have agreed to temporarily close their North American factories to protect workers.
And at the New York Stock Exchange, all trading will go electronic after the trading floor begins a temporary closure Monday.
The moves occurs after a member of the exchange's trading floor community and an employee of the exchange tested positive for the virus Monday, according to International Exchange, the parent company of the New York Stock Exchange.
The exchange operator is waiting until Monday to close the trading floor "to offer participants a few days to be ready for the transition to fully electronic trading," said Josh King, a spokesman for Intercontinental Exchange.
As big areas of the economy retrench while much of society comes to a halt to slow the spread of the virus, investors have clamored for Congress, the Federal Reserve and other authorities around the world to support the economy until it can begin to recover.
But the worldwide number of known infections has topped 200,000, which creates more uncertainty about how badly the economy is getting hit, how much profit companies will make and how many companies may go into bankruptcy because a cash crunch.
As the effects of the coronavirus pandemic hit the U.S. job market, the damage to the labor market looks likely to be much deeper and longer lasting than seemed possible even a week ago.
Most small businesses do not have the financial buffer to pay workers for long if revenue dries up. And while larger public companies may have access to cash, they also have shareholders who want executives to watch the bottom line.
"It's simple math," said Deborah Weinswig, founder of Coresight Research, an advisory and research firm that specializes in retail and technology. "You can't have all expenses and no revenue."
The Economic Policy Institute, a progressive research group, estimated Tuesday that the outbreak could eliminate 3 million jobs by summer.
Some analysts said concern over Washington's unprecedented spending plans, which will balloon the already swollen federal budget deficit and debt, were behind the latest moves.
"Global fixed income markets this morning have lost confidence in the ability of the governments of the world to finance the fiscal stimulus they are proposing," Carl Weinberg, chief international economist for High-Frequency Economics, wrote in a note to clients.
"Traders, investors and speculators have looked at the size and cost of the fiscal stimulus proposed by the United States and other governments -- especially Italy -- and decided to sell sovereign debt of all kinds."
Investors said corporate debt markets also are not yet operating smoothly. Companies have taken advantage of record-low interest rates in recent years to load up on debt. That strategy worked well so long as short-term borrowings could be periodically refinanced.
"These are truly unprecedented events with no adequate historical example with which to precisely anchor our forecast," Deutsche Bank economists wrote in a report Wednesday.
With all the uncertainty and early evidence that China's economy was hit much harder by the virus than earlier thought, they now see "a severe global recession occurring in the first half of 2020."
But they also are still forecasting a relatively quick rebound, with activity beginning to bounce back in the second half of this year in part because of all the aid promised from central banks and governments.
Information for this article was contributed by staff members of The New York Times; by Stan Choe, Damian J. Troise and Alex Veiga of The Associated Press; by David J. Lynch, Thomas Heath and Taylor Telford of The Washington Post; and by Jeremy Herron of Bloomberg News.
A Section on 03/19/2020