By Akane Otani
A rout in global financial markets deepened Tuesday, sending the Dow Jones Industrial Average down nearly 900 points and heightening the anxiety of investors around the world.
The latest wave of selling put U.S. stocks on course for their worst two-day stretch in two years. Fear rippled across financial markets, sending the yield on the 10-year U.S. Treasury note to a record low and crude-oil prices tumbling below $50 a barrel.
For much of the past several weeks, money managers have been fixated on one issue: the potential for a growing coronavirus epidemic to hit global economic activity.
Hope that health officials would be able to contain the epidemic, resulting in only a short-term disruption to growth, had helped keep stocks near all-time highs up until just last week. But in the past two days, that optimism has increasingly turned into skepticism -- wiping out hundreds of billions of dollars from the U.S. stock market.
Banks and consumer-goods companies whose profits are vulnerable to a pullback in consumer spending took a particularly big hit. Citigroup slid 3.9%, while Apple, which has warned that its sales will suffer because of the outbreak, fell 2.6%.
"The size of this economic shock is looking increasingly large on a global scale," said James Athey, a senior investment manager at Aberdeen Standard Investments. "What we're just seeing here is the crack in that sentiment-driven equity rally."
The Dow Jones Industrial Average fell 881 points, or 3.2%, to 27080, as of the 4 p.m. ET closing time, completing its worst two-day stretch of selling in two years. The S&P 500 fell 3% and the Nasdaq Composite lost 2.8%, leaving it slightly negative for 2020.
Major indexes opened modestly higher Tuesday but erased their gains within the first hour of the trading day. Markets hit new lows after reports showed the disease had spread even further and the U.S. Centers for Disease Control and Prevention warned it was preparing for a potential pandemic. As stock indexes dropped, the Nasdaq Composite briefly wiped out its gain for the year.
The market had showed signs of fragility well before stock exchanges even opened for trading in New York. Futures tied to the S&P 500 and Dow Jones Industrial Average had rallied overnight, seeming to point to a potential rebound for the stock market in the hours ahead. But the gains proved fickle -- with much of them fading by sunrise.
"Every effort at a snapback rally has been just as quickly pushed back down," said Frank Cappelleri, executive director of brokerage Instinet. "The fact that [futures' gains] didn't even get through the night -- it probably put a lot of traders on edge."
With Tuesday's declines, eight of the S&P 500's 11 sectors are in negative territory for the year. The worst among them, energy, has shed 19% so far in 2020 -- reflecting investors' fears that a slowdown in global economic activity will drag oil prices lower.
Meanwhile, traders placed bets on further volatility. The Cboe Volatility Index, which tracks expectations for swings in the S&P 500, jumped 15% to bring its year-to-date gain to 108%.
"I just don't think we can accept the numbers coming out of China at face value," said Mark Grant, managing director and chief global strategist at B. Riley FBR.
With little clarity on the severity of the epidemic, as well as uncertainty about if officials will be able to effectively contain it, Mr. Grant said he wouldn't be surprised if there was further volatility across markets.
Investors had largely begun the year with hopes that the global economy would stabilize given a cooling of trade tensions between the U.S. and China and central banks' willingness to hold interest rates at low levels.
But the coronavirus epidemic is throwing into question many firms' projections for growth, raising the possibility of a longer-term disruption to economic activity.
The head of the International Monetary Fund said Tuesday that the fund was downgrading its global-growth projections, as well as trying to figure out if the economic fallout stemming from the epidemic would primarily occur in the first quarter of the year.
Elsewhere, the Stoxx Europe 600 ended down 1.8%, closing out its worst four-day stretch since 2016, after having fallen more than 3% Monday.
China's Shanghai Composite Index lost 0.6%, while Japan's Nikkei Stock Average, which was closed Monday, fell 3.3%.
"This virus doesn't respect borders. There's no real reason to expect it's going to be easy to contain," said Jan Lambregts, global head of financial markets research at Rabobank. "The real economic impact of this is going to be felt."
Caitlin Ostroff contributed to this article
Write to Akane Otani at email@example.com
(END) Dow Jones Newswires
February 25, 2020 16:18 ET (21:18 GMT)
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