Dow sinks 1000 points amid global markets sell-off

Wall Street’s benchmark index posted its biggest loss in two years as the coronavirus threatened wider damage to the global economy.

Wall Street traders watch as stocks tumble. Picture: AP

The Dow Jones Industrial Average sank more than 1000 points as the spread of the new coronavirus threatened wider damage to the global economy.

The drop was the worst for the index in two years and wiped out its gains so far in 2020. Nervous investors scrambled for safety, loading up on gold, US government bonds and other safe-harbour assets.

The price of oil fell sharply on expectations that demand for energy would tumble.

The Dow lost 1031 points, or 3.6 per cent, to 27,960. The S&P 500 fell 111, or 3.4 per cent, to 3,225. The Nasdaq fell 355, or 3.7 per cent, to 9,221.

Earlier, Germany’s DAX slid 4 per cent and Italy’s benchmark index dropped 5.4 per cent. South Korea’s Kospi shed 3.9 per cent and markets in Asia fell broadly.

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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. The rapid spread to other countries is raising anxiety about the threat the outbreak poses to the global economy.

South Korea is now on its highest alert for infectious diseases after cases there spiked.

Italy reported a sharp rise in cases and a dozen towns in the northern, more industrial part of that country are under quarantine. The nation now has the biggest outbreak in Europe, prompting officials to cancel Venice’s famed Carnival, along with soccer matches and other public gatherings. There are also more cases of the virus being reported in the Middle East as it spreads to Iran, Iraq, and Kuwait, among others.

Investors looking for safe harbours bid up prices for US government bonds and gold. The yield on the 10-year Treasury note fell sharply, to 1.38 per cent from 1.47 per cent late on Friday. Gold prices jumped 1.7 per cent.

“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 viral outbreak threatens to crimp global economic growth and hurt profits and revenue for a wide range of businesses.

Companies from technology giant Apple to athletic gear maker Nike have already warned about a hit to their bottom lines. Airlines and other companies that depend on travellers are facing pain from cancelled plans and shuttered locations.

Crude oil prices slid 3.7 per cent. Aside from air travel, the virus poses an economic threat to global shipping.

Technology companies were among the worst hit by the sell-off. Apple, which depends on China for a lot of business, slid 3.4 per cent. Microsoft dropped 2.6 per cent. Banks were also big losers. JPMorgan Chase fell 2.1 per cent and Bank of America slid 4.4 per cent.

Airlines and cruise ship operators also slumped. American Airlines lost 8.2 per cent, Delta Air Lines dropped 5.8 per cent, Carnival skidded 7.9 per cent and Royal Caribbean Cruises gave up 7.7 per cent.

Gilead Sciences rose 3.9 per cent 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 1.7 per cent.

Utilities and real estate companies held up better than most sectors. Investors tend to favour those industries, which carry high dividends and hold up relatively well during periods of turmoil, when they’re feeling fearful.

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 centred 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.”

The sell-off is hitting the market as companies near the finish of what has been a surprisingly good round of earnings. About 87 per cent of companies in the S&P 500 have reported financial results and profits are expected to grow by more than a half-percentage point when all the reports are in, according to FactSet.

In the eyes of some analysts, the stocks plunge means they’re just catching up to the bond market, where fear has been dominant for months.

US government bonds are seen as some of the safest possible investments, and investors have been piling into them throughout 2020, even as stocks overcame stumbles to set more record highs. A bond’s yield falls when its price rises, and the 10-year Treasury has been in such demand that its yield has plunged to 1.38 per cent from roughly 1.90 per cent at the start of the year.

The 10-year yield on Monday touched its lowest point in three years, falling from 1.47 per cent late on Friday, and it was near its intraday record low of 1.325 per cent set in July 2016, according to Tradeweb. The 30-year Treasury yield fell further after setting its own record low, down to 1.84 per cent from 1.92 per cent late Friday.

AP