The U.S. stock market headed for a lower open Wednesday as coronavirus lockdowns and travel restrictions expanded, rattling investors despite Washington’s promises for economic aid.
Ahead of regular daytime trade, futures for the Dow Jones industrial averages dropped more than 800 points, while Standard & Poor’s 500 futures sank 5%, triggering an automatic shock absorber. Stocks had stabilized a day earlier after President Donald Trump promised aid to get the U.S. economy through the outbreak.
Investors need to see the number of infections slow before markets can find a bottom, analysts say. The number of new cases reported in China, where the virus emerged in December, is declining but infections in the United States, Europe and elsewhere are increasing.
“There’s no clarity. We don’t know what the real effects from these monetary and fiscal policies are going to be for a while,” says Rich Sega, global chief investment strategist at asset manager Conning. “We need to see data that shows that the infection rate has peaked.”
The White House proposal could approach $1 trillion in spending to ward off the damage of business closures to contain the virus. The Federal Reserve has announced more measures to keep financial markets operating.
Treasury Secretary Steven Mnuchin said Trump wants to send checks to Americans in the next two weeks to help support them while more parts of the economy come closer to shutting down.
“The monetary policy from the Fed can help us climb out of this later down the road, but White House officials still don’t have clarity on how long this will last,” Sega says. “That’s damaging markets. We don’t get the feeling that they know when this will be over.”
There were 114 reported deaths and more than 6,490 confirmed cases in the U.S. as of early Wednesday, according to the Johns Hopkins University data dashboard. Worldwide, the virus has infected more than 200,000 people and killed nearly 8,000.
Stocks have wiped out trillions in market value over the past month. The S&P 500 has shed 25% since setting a record in mid-February, snapping the longest-ever bull market in Wall Street history.
No escaping a recession
“This is a severe blow to investor confidence and a severe blow to household net worth,” says Doug Ramsey, chief investment officer at the Leuthold Group. “We’re certainly not going to escape a recession. Now the question is how deep?”
A global recession is Morgan Stanley’s “base case,” with growth expected to fall to 0.9% this year, analysts said in a note. Global growth is forecast to contract 0.3% in the first quarter and 0.6% in the second quarter, they said. A “strong monetary and fiscal policy response” from the U.S. government is expected to help revive global growth in the third quarter.
In Europe, the FTSE 100 in London dropped 4.3% and Frankfurt’s DAX skidded 3.7%. France’s CAC 40 shed 3.4%. In Asia, the Shanghai Composite Index fell 1.8% and the Nikkei 225 in Tokyo shed 1.7%. Hong Kong’s Hang Seng skidded 4.2%.