U.S. stocks and bond yields dropped Thursday, reflecting continued volatility in markets as investors around the world remain jittery about the economic fallout from the coronavirus outbreak.
The Dow Jones Industrial Average fell more than 650 points, or 2.5%, shortly after the opening bell, erasing much of the gains notched Wednesday. A strong Super Tuesday performance by former Vice President Joe Biden and growing signs of a coordinated response to the coronavirus led to a sharp rally in U.S. stocks. The S&P 500 fell 2.3%. The Nasdaq Composite shed 1.9%.
Losses in the stock market were broad, with all 11 of the S&P 500’s sectors falling in early trading Thursday.
Sharp stock swings have dominated the week, continuing a bout of volatility that led to the worst Wall Street selloff since the financial crisis last week.
Investors have been grappling with the spreading coronavirus and the extent to which it will harm consumer sentiment and business investment around the world. The coronavirus has led to a darkening outlook for corporate earnings and economic growth this year.
The early stock decline Thursday suggests that steps by the Federal Reserve and U.S. lawmakers this week to bolster economic growth is failing to assuage investors. More people around the world are being diagnosed with the virus.
Health authorities are warning that it may be impossible to fully contain the pathogen as infections are spreading within many communities. Meanwhile, steps taken to halt the outbreak has curtailed travel and business activity in the epicenters of the disease.
“There is a sense that there is only so much monetary policy can do, given markets have priced that in already,” said Jonas Goltermann, senior markets economist at Capital Economics. “Even with all the stimulus measures, those are not going to stop the virus and until there are signs the rate of infection are slowing we don’t think there will be a sustained rally.”
Investors are betting on more rate cuts later this year, CME Group data show.
Bond investors also signaled continued anxiety about economic prospects as they piled into haven assets such as U.S. government bonds. The yield on the benchmark 10-year U.S. Treasury drifted down to 0.942%, from 0.994% at the close on Wednesday. Yields fall as bond prices rise.
Shares of financial companies were some of the hardest hit in early trading. Falling yields can crimp profits for big banks.
European stocks also fell, with the pan-continental Stoxx Europe 600 index down 1.8%. The basic resources sector and aerospace and defense companies were among the hardest hit.
“Much of the volatility we’re seeing is a product of this to and fro, this push and pull about which forces should have the upper hand, the technical impact from Covid-19 or the feel-good factor from policy stimulus,” said Richard McGuire, a rates strategist at Rabobank.
U.S. stocks are poised to remain turbulent with the Cboe Volatility Index, or VIX, climbing to over 35. The index, sometimes known as Wall Street’s fear gauge, last week topped 40 to hit its highest level since 2011.
With volatility elevated and gauges of investor confidence low, markets are likely to keep swinging, according to Olivier d’Assier, head of applied research for the Asia-Pacific region at financial analytics firm Qontigo.
“We are going to be stuck in this for a while” Mr. d’Assier said. “You’ve got short-term traders buying on the stimulus and then you have medium- and long-term investors de-risking.”
Investor sentiment had shown signs of improvement Wednesday after U.S. lawmakers passed an $8 billion-emergency spending package on Wednesday to combat the coronavirus. Meanwhile, the International Monetary Fund detailed the $50 billion in lending programs it has that could help countries grappling with the virus.
On Friday, investors will be parsing the monthly jobs report to see if U.S. hiring remained strong in February. The number of Americans applying for first-time unemployments fell last week, the Labor Department said Thursday, suggesting anxiety about the spread of the coronavirus haven’t yet affected layoffs.
Travel and leisure stocks continued to take a beating. Cruise line operator Norwegian Cruise Line Holdings fell more than 7%, while Royal Caribbean Cruises dropped 10.8% as travelers continue to back out of planned cruises because of virus fears. American Airlines retreated 7.5%.
In contrast, most Asian markets rose Thursday, with the Shanghai Composite Index and Hong Kong’s Hang Seng Index both closing up around 2%.
Eli Lee, head of investment strategy at Bank of Singapore, said he viewed recent market action as noise. “The rebound is the latest in a series of gyrations we’ve seen, and reflects the fact equities were likely oversold,” he said.
Mr. Lee said a coordinated international monetary and fiscal response would help boost financial conditions and investor sentiment, but added: “These are ultimately very blunt tools against a medical crisis that is poised to cause a sharp shock to consumer demand and production.”
Shares rose in Asia early Thursday.
Photo: kazuhiro nogi/Agence France-Presse/Getty ImagesIn commodities, Brent crude, the global oil benchmark, wavered between gains and losses before edging down 1% in recent trading. OPEC has reached a preliminary agreement to cut crude output amid a global glut and eroding demand, The Wall Street Journal reported, as members of the oil-exporting group and their allies gather for a two-day meeting in Vienna. The collective plan, in response to the virus outbreak, still needs to be approved by Russia.
“In order for this to succeed, they need Russia to be onboard or they would just pass over market share to a major competitor,” said Ole Hansen, head of commodity strategy at Saxo Bank.
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—Gunjan Banerji contributed to this article.
Write to Avantika Chilkoti at Avantika.Chilkoti@wsj.com and Chong Koh Ping at chong.kohping@wsj.com
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https://www.wsj.com/articles/global-markets-follow-u-s-stocks-higher-11583376176
2020-03-05 14:53:00Z
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