The stock market’s 11-year bull run is pretty much over.
The Dow Jones industrial average dropped 1,464.94 points on Wednesday to close at 23,553.22, dropping more than 20% from its record high last month and putting it in bear territory for the first time since the financial crisis of 2007-2009.
The blue-chip average entered the new, gloomy market phase after the World Health Organization deemed the coronavirus outbreak a global pandemic and investors anxiously awaited fiscal stimulus plans from the government.
“This is the swiftest fall from grace that I’ve ever seen,” says Megan Horneman, director of portfolio strategy at Maryland-based Verdence Capital Advisors. “We would have never forecast it would be the coronavirus that could take this market down.”
That said, the Standard & Poor’s 500, the main gauge of U.S. stock markets, avoided entering a bear market by a hair. Wednesday’s rout left the S&P 500 down 19.2% from its Feb. 19 high. Wall Street professionals consider a bear market official when the broader index drops 20% from its peak.
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The market’s swift decline and wild swings the past few weeks have rattled investors. It was only three weeks ago that the S&P 500 set the all-time high.
“Investors are skittish,” says Gene Goldman, chief investment officer at Cetera Investment Management. “They see these big market swings and now they’re worried about their 401(k) balances.”
Traders had been cautioning for months that stock valuations were stretched and poised to pull back after last year’s strong gains, with the S&P 500 surging nearly 29%. Safe-haven bonds have also fueled warnings about the global economy for months.
The WHO 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?”
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 New York Federal Reserve said Wednesday it will boost the amount of money it provides to banks for overnight borrowing to at least $175 billion through mid-April.
The Bank of England, meanwhile, 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.”
To be sure, when stocks have weathered the storm during past epidemics. In the 12 months after the WHO declared a global health emergency in previous instances, the stock market returned double-digit gains, according to Horneman. WHO declared the coronavirus outbreak a global health emergency in January.
“What makes it feel different this time around is the U.S. government’s response,” Horneman says. “It’s created uncertainty. I do think they’ll clarify that because you can’t go into an election year with a bear market and possibly a recession and expect to get re-elected.”
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.
Even a climb in Treasury yields, which normally signals renewed confidence among investors, wasn’t enough to turn stocks higher. The yield on the 10-year Treasury rose to 0.83% from 0.75% late Tuesday. That’s a sign of less demand for ultra-safe U.S. government bonds.
In Europe, France’s CAC 40 fell 0.6%, while Germany’s DAX edged down 0.4%. Britain’s FTSE 100 fell 1.4%. Japan’s benchmark Nikkei 225 lost 2.3%. Australia’s S&P/ASX 200 plunged 3.6%.
Contributing: The Associated Press.