By Gunjan Banerji and Will Horner
The Dow Jones Industrial Average dropped more than 600 points
Friday as a spreading viral outbreak fanned fears about global
economic growth, igniting volatility across markets.
Investors have quickly soured on the market in recent days,
fearful that the outbreak would have far-reaching implications on
the global economy. Unlike corporate earnings or economic data, the
long-run impact of the virus is trickier to measure for many
investors and analysts, injecting even greater uncertainty into
markets.
The blue-chip index dropped 610 points, or 2.1%, as losses
accelerated midday. The S&P 500 lost 1.8% on Friday, and the
tech-heavy Nasdaq Composite fell 1.6%.
The week was punctuated by flare-ups in market volatility, a
sharp shift from the relatively serene ascent for stocks as they
jumped to record after record with astonishing speed in recent
months.
The S&P 500 had been on one of its longest stretches without
a move of more than 1% since 1969, before the calm shattered to
start the week. In a dramatic reversal, the broad stock market
gauge is on track to record three moves of at least 1% over the
past five days.
"I think people were lulled to sleep," said R.J. Grant, director
of equity trading at KBW. "It does not take much to throw things
off kilter.
As investors dumped equities, they reached for traditionally
safer assets like Treasurys and gold. In one sign of the growth
worries, the yield on the benchmark 10-year U.S. Treasury note
edged back below the yield of the three-month bill this week. The
phenomenon, known as a yield-curve inversion, is often interpreted
as a warning sign about a recession ahead.
The World Health Organization on Thursday declared the
coronavirus -- which has now sickened more than 9,500 people and
killed over 200 -- a public-health emergency of international
concern. Meanwhile, the U.S. saw its first person-to-person
transmission of the virus, escalating concerns about its
spread.
The growing contagion has roiled markets as investors attempt to
assess whether the virus could weigh on China's economy as
businesses are shut, borders closed and flights suspended, while
also gauging the outbreak's wider impact.
The number of people sickened by the new coronavirus in China
now exceeds the global total infected with severe acute respiratory
syndrome, or SARS, which killed nearly 800 people after emerging
from southern China in late 2002 and spreading into 2003.
The potential effects of the coronavirus darkened the outlook at
a time when many investors had been encouraged by progress on trade
between two of the biggest world economies, along with three
interest rate cuts by the Federal Reserve.
"It could get worse before it gets better," said Adam Phillips,
director of portfolio strategy at wealth management firm E.P.
Wealth Advisors. "We alleviate one area of uncertainty and we get
two more in its place."
Mr. Phillips said he has been advising clients to brace for
choppy waters ahead in the stock market.
The outbreak also comes as some big manufacturers have exhibited
signs of strain as their earnings results poured in throughout the
week, raising other concerns about the economy. Caterpillar, often
considered a bellwether for the economy, said Friday it expects
demand for its machinery to fall this year, citing global economic
uncertainty that crimped sales in the latest quarter. Its shares
dropped 3.2% Friday.
Boeing earlier this week reported its first annual loss in more
than two decades, as one of its aircraft has been grounded
world-wide. And 3M is planning layoffs during a global
restructuring.
Meanwhile, new data Friday showed that business activity
faltered. One measure, the Chicago Business Barometer, fell to its
lowest point in about four years, hitting 42.9 and falling well
below expectations. Readings under 50 indicate activity is
contracting.
"It's a disappointing number," said Chris Zaccarelli, chief
investment officer for Independent Advisor Alliance. "It's been a
tale of two economies."
Although manufacturing data has disappointed recently, the U.S.
consumer continues to spend, restoring some faith in the decadelong
economic expansion.
Fresh data released Friday showed household spending rose a
seasonally adjusted 0.3% in December from November. Personal income
advanced 0.2% last month. The spending figures were in line with
economists' expectations, while the personal income number fell
short of expectations.
The rocky week for major indexes has been marked by even more
explosive moves in individual stocks. The sharply divergent
fortunes of some corners of the stock market was on stark display.
As manufacturing heavyweights delivered lackluster news, some tech
highflyers outperformed, soaring to unprecedented heights.
Amazon.com jumped 8.2% after the e-commerce giant's
fourth-quarter sales set a record for the holiday period. It is
poised to become the fourth U.S. company to close with a $1
trillion market value and close at a record.
Tesla's stock continued to soar after the electric-car maker
reported its third consecutive quarter of record vehicle
deliveries. Its shares jumped 10% Thursday and edged higher
Friday.
International Business Machines rose about 5.2% after the
technology company said Chief Executive Ginni Rometty is stepping
down following a challenging eight-year run.
Some investors said the recent declines were healthy, given how
quickly major indexes had clinched record after record in recent
months.
"We've had such a huge run last year," Mr. Zaccarelli said. "You
have to keep things in perspective."
Stocks in Asia were mixed. The Hang Seng Index had its worst
month since August 2019 and exchanges in China remained shut.
Elsewhere, new data on major European economies proved to be a
disappointment. France's output shrank in the fourth quarter as
strikes and protests against the government's pension plan
curtailed business activity. Italy's economy also contracted in the
latest quarter.
The pan-continental Stoxx Europe 600 gauge fell about 1.2% this
month, its biggest one-month decline since August 2019. The U.K.'s
FTSE 100 index just finished its worst week since October 2018
after the country reported its first two cases of the virus.
"There was definitely a sense of euphoria that was priced into
the market," Brian O'Reilly, head of investment strategy at the
Dublin-based Mediolanum International Funds, said. "But we are not
expecting a rebound in global GDP at least until the middle of this
year. We think it will just take time for confidence to build."
Write to Gunjan Banerji at Gunjan.Banerji@wsj.com and Will
Horner at William.Horner@wsj.com
(END) Dow Jones Newswires
January 31, 2020 15:44 ET (20:44 GMT)
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