U.S. stocks were pummeled Monday after the coronavirus pandemic fueled anxiety that the global economy was headed for a recession as countries continue to shut down global business and travel.
The Dow Jones Industrial Average collapsed 2,999 points, or 12.9%, to close at 20,188.52 — its second worst percentage loss in history behind the “Black Monday” stock market crash in 1987. The benchmark Standard & Poor’s 500 index plunged 12% to finish at 2,386.13. The broad index briefly triggered an automatic shock absorber for the third time in six sessions when it fell more than 7% shortly after the opening bell. The technology-heavy Nasdaq Composite dropped 12% to end at 6,904.59, one of its worst days ever.
The turbulence came after the Federal Reserve took emergency action late Sunday to cushion the economy from the deadly virus. The central bank cut interest rates and launched a fresh round of crisis-era bond purchases.
Losses accelerated in the final hour of trading Monday after President Donald Trump said the outbreak could last into the summer.
“Investors aren’t happy because these rate cuts won’t stimulate the economy in the near term. You can’t stimulate demand if everyone is stuck in their house,” says Shana Sissel, director of investment due diligence at Orion Advisor Solutions. “This isn’t a financial failure. This is a global pandemic that affects everyone across the globe. The quickest way to ramp everything back up is to provide them with a safety net in the meantime.”
“If people are forced to stop working, they still have to pay rent at the end of the month,” says Willie Delwiche, an investment strategist at Baird. “This is a much bigger problem with an unknown solution than we’ve ever had in the past.”
Investors were anxiously awaiting an aid package from Washington that investors hope can help cushion the economy from the slowdown in economic activity. The Senate is expected to vote mid-week on legislation to provide economic relief to Americans affected by the deadly coronavirus pandemic. Trump said Friday he would support the sweeping measure.
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“Monetary and fiscal policy need to work together to bridge the next several months until the virus recedes and the economy gets back on its feet,” says Michael Sheldon, chief investment officer and executive director at investment adviser RDM Financial Group at Hightower. “Actions by multiple central banks around the world should help over time, but greater fiscal policy will likely be needed to help those affected.”
On Monday, Japan’s central bank expanded asset purchases to inject money into the economy and promised no-interest loans to help companies cope with the crisis.
The yield on the 10-year Treasury slid to 0.72% from 0.95% late Friday, a sign that investors are flocking into investments seen as safe.
Global markets were battered overnight after China reported retail sales fell 20.5% from a year ago in January and February after shopping malls and other businesses were closed. Factory output declined by a record 13.5% after the Lunar New Year holiday was extended to keep manufacturing workers at home.
The figures were even bleaker than economists expected. Some cut their forecasts for the world’s second-largest economy. ING said this year’s growth might fall as low as 3.6%, the weakest since at least the 1970s.
JPMorgan Chase says the U.S. economy may shrink at a 2% annual rate this quarter and 3% in the April-through-June quarter. To many investors, that meets the definition of a recession, and the question is how long it will last.
Last week, the longest bull market in history ended just days following its 11th anniversary after the S&P 500 slid into a bear market, or a 20% drop from its Feb. 19 record. Strategists at Goldman Sachs say the broad index could drop as low as 2,000 in the middle of the year, which would be a 41% decline from its high set just a month ago. Goldman expects the index would rally back to 3,200 at year end.
“The coronavirus has created unprecedented financial and societal disruption,” Goldman analysts said in a note. “But event-driven bear markets are usually followed by sharp rebounds.”
Overseas, Paris tumbled 5.8%, London sank 4% and Frankfurt gave up 5.3%. Sydney’s benchmark plunged 9.7% and Hong Kong’s Hang Seng lost 4%.
Contributing: The Associated Press