By Caitlin Ostroff, Chong Koh Ping and Karen Langley 

U.S. stocks closed sharply lower Thursday as investors braced for the spreading coronavirus to slow business activity and depress corporate earnings.

The Dow Jones Industrial Average fell 4.4%, about 1,186 points, as of 4 p.m. Eastern time, and the Nasdaq Composite slid 4.5%. The S&P 500 was down 4.4%. All three closed near the lows on the day and finished the session down more than 10% from their recent highs, a decline known as a correction.

For the broad-based S&P 500, it was the fastest decline into correction territory from an all-time high since at least 1980, according to Dow Jones Market Data.

All three indexes were in negative territory for the year after punishing losses this week, and the Dow over the four days was down 11%. Investors have grown increasingly worried about the potential economic impact of the virus as it emerges in new locations.

"Obviously it's a bloodbath," said David Bahnsen, chief investment officer of The Bahnsen Group, a wealth-management firm. "When you get into a free-fall mode, there's really little that can be done but wait for some sort of footing to be found."

Some U.S. companies say they could lose as much as half their annual revenue from China if the coronavirus epidemic extends through the summer. American businesses will generate no earnings growth in 2020 if the virus becomes widespread, Goldman Sachs Group's equity analysts warned on Thursday.

"We have to brace ourselves for wave after wave of earnings downgrades," said Paul O'Connor, head of multiasset at Janus Henderson Investors. "The globalization of the virus extinguishes confidence in the V-shaped recovery that was the view last week."

Microsoft warned Wednesday that supply-chain disruptions from the coronavirus would hurt sales this quarter, making it the second major tech company -- after Apple -- to lower expectations because of the epidemic.

With Thursday's losses, only one sector of the S&P 500 -- the utilities group -- was sitting in positive territory for the year. The stock index as a whole was down 6.2% for 2020.

European indexes also dropped, with the Stoxx Europe 600 tumbling 3.7%. In Asia, Japan's Nikkei 225 closed 2.1% lower, while South Korea's Kospi declined 1%.

Investors continued to seek the safety of government-bond holdings. The yield on the benchmark 10-year U.S. Treasury, which closed at a record low of 1.310% on Wednesday, fell to 1.299% Thursday, according to Tradeweb. Yields move inversely to bond prices.

A key measure of turbulence in U.S. stocks also rose Thursday, with the Cboe Volatility Index, or VIX, jumping to 33.27, its highest level since December 2018. The options-based gauge tends to rise when markets fall and investors reach for insurance-like contracts to protect their portfolios.

"It's very scary on a personal level, and I think that psychology pervades through the market" said Sam Hendel, president and portfolio manager at Levin Easterly Partners. "As an investor, my job is to keep a cool head."

More than 82,000 people have been infected by the virus and the death toll stands at more than 2,800 globally. On Wednesday, American authorities said a patient in California might be the first U.S. coronavirus case to be diagnosed without a clear explanation for how the disease was transmitted.

"Everyone is now trying to assess what the economic impact will be," said Neil Dwane, global strategist at Allianz Global Investors. "The U.S. is looking at Europe and Japan as evidence of how the world is responding."

Write to Caitlin Ostroff at caitlin.ostroff@wsj.com, Chong Koh Ping at chong.kohping@wsj.com and Karen Langley at karen.langley@wsj.com

 

(END) Dow Jones Newswires

February 27, 2020 16:17 ET (21:17 GMT)

Copyright (c) 2020 Dow Jones & Company, Inc.