Wall Street shares surge to cap off wild trading week

The Dow Jones staged its biggest surge since 2008 one day after registering its biggest sell-off in more than three decades.

Traders work at the New York Stock Exchange. Photo: AFP

Investors braved a whiplash week for Wall Street that landed major indexes in a bear market for the first time in 11 years, as fears about the coronavirus’s effect on people and business swelled.

The haywire period on Wall Street continued Friday, with the Dow Jones Industrial Average staging its biggest surge since 2008 one day after registering its biggest sell-off since 1987. For the week, the index finished 10 per cent lower.

Stocks swung on Friday before making a stunning rally in the last minutes of the trading session to push indexes to their best single-day gains since 2008. The Dow rose 1,985 points, or 9.4 per cent, to 23185.62. The S&P 500 jumped 230.38 points, or 9.3 per cent, to 2711.02. The Nasdaq Composite added 673.07 points, or 9.3 per cent, to 7874.88.

Big swings in the final minutes of trading have become a staple of the recent market tumult. Despite Friday’s surge, all three major indexes finished the week with losses of at least 8 per cent. The S&P and Nasdaq remain 20 per cent below their record highs set last month; the Dow is down 22 per cent from its peak.

In one sign of how topsy-turvy the week was, the S&P moved up or down by at least 4 per cent for five consecutive sessions, the longest such streak since 1929, according to Dow Jones Market Data.

Fears about how far and wide the global coronavirus pandemic would spread have triggered a rush out of riskier assets like stocks and commodities, despite action from the Federal Reserve and attempts by politicians and the White House to reassure investors and the public. President Trump declared a national emergency over the pandemic Friday, opening access to $50 billion in financial assistance for states, localities and territories.

People’s trips for work and leisure have been cancelled, organisers nixed conferences and major sports leagues put operations on hold. Many people are staying home, which will cut back on spending and potentially crimp key sources of economic growth over the past decade. Much remains unknown about the virus and its potential reach, adding to investors’ unrest.

Those ripple effects, combined with an energy fight between Saudi Arabia and Russia that tanked oil prices early in the week, posed hurdles that the 11-year-old bull market wasn’t able to overcome.

The Fearless Girl statue in front of the New York Stock Exchange. Picture: AFP

“It was a fun ride,” said RJ Grant, director of equity trading at KBW, of the 11-year bull market. “All good things come to an end.” Mr Grant said news of how far and wide coronavirus could spread spurred even more selling earlier in the week. He described a sense of unease among people.

“Panic has taken hold to some extent,” Mr Grant said. “You’re just getting people that are not feeling good about the state of the world.” The Fed said Friday it would accelerate planned purchases of Treasury securities, buying more than $US30 billion in bonds to address poorly functioning markets. The move is the central bank’s third notable step since volatility gripped the markets. Earlier this week, it said it would inject more than $US1.5 trillion into short-term funding markets on Thursday and Friday to prevent ominous trading conditions from creating a sharper economic slowdown. Last week, it enacted its first emergency interest-rate cut since the financial crisis.

The measures are being put into place as the US and world economies look increasingly likely to slip into recession with expanding swathes of commerce being shut down amid the pandemic. The coronavirus crisis has sent shockwaves through stock, bonds and commodities markets, prompting sharp swings in US Treasury yields, which rise when bond prices fall.

Further alarming some investors is that the traditional relationships between stocks, bonds and gold broke down at times this week as investors rushed to sell broadly across asset classes, leading to huge concurrent price drops. Typically as stocks fall, assets like Treasurys and gold appreciate.

In recent days, yields have risen despite declines in stocks. On Friday, the yield on the benchmark 10-year bond edged up to 0.946 per cent, bouncing from a record low earlier in the week and logging the biggest one-week yield gain since September.

The concurrent swoon across asset classes was a sign of how extreme the anxiety on Wall Street had gotten. Money managers appeared to be dumping assets across the board to raise cash. Gold prices logged their biggest one-week decline since September 2011.

“Things are still rocky. Volume is low,” said Jim Vogel, an interest-rate strategist at FHN Financial. “People are used to the Treasury market being a reliable signal. It creates a second order of confusion.” Yields pared some gains after the University of Michigan’s survey showed the coronavirus and the stockmarket sell-off are chipping away at Americans’ economic outlook, one of the many economic data points investors will be parsing to gauge how the virus is affecting businesses and consumers in the US.

On two occasions in the past week, stocks fell so hard and so fast that for the first time in 23 years, circuit-breakers were triggered that froze the entire market for 15-minute spans. Investors searched for protection in the options market, sending prices higher and driving the Cboe Volatility Index, known as Wall Street’s “fear gauge,” to its highest level since the financial crisis this week.

To some, the jolts of volatility in recent weeks were reminiscent of dark moments during the financial crisis. ”When you go weeks and weeks of constant selling pressure, it’s pretty brutal on the psychology,” said Mike Bailey, director of research at FBB Capital Partners.

The Dow fell 10 per cent on Thursday after President Trump announced a 30-day ban on some travel from Europe into the US. It was the largest one-day drop since the 1987 stockmarket crash, what became known as Black Monday. Abroad, the pan-continental Stoxx Europe 600 plummeted 11.5 per cent on Thursday, its largest decline on record, dragging the index to a level not seen since 2013. On Monday, oil prices tanked the most since the Gulf War of 1991 as a price fight between Saudi Arabia and Russia escalated.

Some traders said it was hard to transact at times and that liquidity, or how easy it is to get in and out of positions, worsened in certain markets. That was apparent in Treasurys and other markets throughout the week.

“We need to be able to transact constantly to manage our risk,” said Zhiwei Ren, a portfolio manager at Penn Mutual Asset Management, who said he felt handcuffed at times by how costly it was to trade across asset classes, credit in particular. “Sometimes you want to do something, but you can’t do it.” Mr Ren said he has grown pessimistic about the world economy and has been selling exposure to stocks this week as the rout continued. He thinks the worst isn’t over for the stock market. He started unloading stocks in late February as major U.S. indexes were close to highs.

Then the S&P 500 swivelled into a bear market in just 16 trading sessions, a record pace. The speed at which markets went from calm to frenzied has alarmed traders across Wall Street. Just weeks ago, corporate earnings and a domestic economy that was humming along led stocks to fresh highs.

“Are we going to a global recession? It’s becoming more likely,” said Kevin Ferret, a rates and derivatives strategist at Société Générale, adding that he doesn’t expect the swings in markets to stabilise.

Oil prices fell. Brent crude logged its biggest weekly decline since December 2008, falling 25 per cent this week to $US33.85. Prices are down 49 per cent from where they started the year.

In Asia on Friday, most major indexes closed down after a volatile day that prompted some exchanges to impose short trading halts. Japan’s Nikkei declined 6.1 per cent. Australia’s ASX 200 index closed up 4.4 per cent after its central bank provided an $US8.8 billion to its banks in short-term borrowing known as the repo market. India’s Sensex index rose 4 per cent after the Reserve Bank of India also said that it would inject cash into markets.

While central banks had moved quickly to cut interest rates and make sure funding was available for banks and companies, that isn’t enough, according to Tai Hui, chief market strategist for Asia at JP Morgan Asset Management.

“Governments will need to accelerate their fiscal support” to limit the negative impact on businesses and low-income families, Mr. Hui said. Investors are now pricing in a US recession, he said.

Markets are likely to stay volatile, and global coronavirus infection rates have shown no signs of peaking, said Eli Lee, head of investment strategy at the Bank of Singapore.

“The rout started from valuations at fairly rich levels, and deep value has not sufficiently emerged for bargain hunters to show up in force,” Mr Lee said, noting that global stocks had been comparatively expensive before the recent sell-off began.

Adding to the uncertainty for people around the world and traders on Wall Street is that no one is able to pinpoint the true human or economic impact of its spread. The steps likely to help contain the virus will also hamper economic growth.

“It’s a really interesting conundrum because we know the very thing that’s going to damage the economy the most is probably going to be the most effective in controlling the virus,” said John Cunnison, chief investment officer at Baker Boyer.

Mr Cunnison said the calls he has gotten from clients haven’t been the nervous ones many would expect. One of the biggest lessons from the last financial crisis is that it didn’t pay to sell in a panic when markets tanked. U.S. stocks notched a recovery that lasted more than a decade after the crisis ended.

-Wall Street Journal