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The Dow Jones industrial average is on pace to close in a bear market Wednesday, a swift retreat from record highs just a month ago as worries persist over economies reeling from the coronavirus outbreak.
The blue-chip average dropped as much as 1,412 points, putting it on track to enter a bear market, or a drop of 20% from its Feb.12 high. That would mark its largest decline since the financial crisis.
Investors use the Standard & Poor’s 500, a benchmark for mutual funds, to track the broader stock market. Wednesday’s rout left it down nearly 20% – almost bear territory – from its record. The broad index shed 5%, leaving it off about 19.1% from its Feb. 19 high. The Nasdaq Composite shed 4.7%, putting it 19% away from its record last month.
The World Health Organization declared the virus a global pandemic Wednesday as the number of confirmed cases exceeded 121,000. Countries are shifting into damage-control as infections spread, prompting sweeping controls on travel, closures of schools and cancellations or postponements of sports events and many other public activities.
“The big unknown is how widespread this virus will become and how it will affect global supply chains,” says Keith Buchanan, portfolio manager at GLOBALT Investments. “If there’s a push for everyone to stay at home to stem the spread of the virus, what does that mean for us economically?”
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The speed of the market’s declines and the degree of its swings the last few weeks have rattled investors. It was only three weeks ago that the S&P 500 set a record high, and the Dow has had six days where it swung by 1,000 points since then. It’s done that only three other times in history.
President Donald Trump said late Monday he will seek financial relief for workers and businesses affected by the coronavirus outbreak, as new cases were reported across the country. But investors are still waiting for details promised earlier by him on potential aid for the economy.
“Investors are looking for a fiscal stimulus package from Congress to stem the economic blows that individuals and businesses are taking,” Buchanan says. “When that didn’t take shape, it disappointed investors.”
The Bank of England cut its key interest rate by half a percentage point to 0.25% as an emergency measure in response to the outbreak of the deadly virus. The central bank said the move would “help support businesses and consumer confidence at a difficult time.”
Concerns have grown that a prolonged outbreak may bring on a recession. There are more than 80,900 confirmed cases in mainland China, where the virus has killed more than 3,100 people. The number of confirmed cases in the U.S. surpassed 1,030 as of early Wednesday.
Goldman Sachs forecast that the longest-ever bull market “will soon end” after 11 years. It also lowered its profit forecast for the S&P 500 index, the broadest measure of the U.S. stock market, citing lower crude oil prices and interest rates.
“Both the real economy and the financial economy are exhibiting acute signs of stress,” analysts at Goldman Sachs said in a note. “Supply chains have been disrupted and final demand has declined for many industries. Travel is contracting sharply as both individuals and businesses restrict movement.”
The bank cut its mid-year outlook for the S&P 500 to 2,450, with expectations the stock market will drop another 15% from Tuesday’s close.
Perhaps the best gauge of confidence in the economy on Wall Street recently, Treasury yields, also pulled back. The yield on the 10-year Treasury fell to 0.70% from 0.75% late Tuesday.
Oil prices, which plunged 25% on Monday amid a price war between producers, have steadied in the past two days. Brent crude, the international standard, fell 32 cents to $36.90 per barrel. It rose $2.86, or 8.3%, to $37.22 a barrel on Tuesday. Benchmark U.S. crude fell 48 cents to $33.88 a barrel. It rose $3.23 to $34.36 a barrel on Tuesday.
In Europe, France’s CAC 40 gained 0.4%, while Germany’s DAX edged up 0.1%. Britain’s FTSE 100 fell 0.6%. Japan’s benchmark Nikkei 225 lost 2.3%. Australia’s S&P/ASX 200 plunged 3.6%.
Contributing: The Associated Press.
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