Rising anxiety over the global coronavirus outbreak pushed the stock market into a new zone of fear Thursday.
After falling sharply all week, the Dow Jones Industrial Average tumbled as much as 960 points on mounting worries that the virus could spread in the USA as the number of worldwide cases topped 82,000. Thursday’s losses put the blue-chip average on pace to close into a correction – a decline of 10% from a recent high – for the first time since December 2018.
The Dow was recently down 800 points in a day of whipsawed trading. The index swung 778 points from its intraday high to its low.
The sharp declines wiped out the Dow’s gains for the year and trillions of dollars from investors’ portfolios in a matter of days. Heading into Thursday, the average was down 7% this week, on track for its worst weekly percentage performance since the depths of the financial crisis in 2008.
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Traders are concerned the global economy could stumble as major industrial countries struggle to contain the outbreak. The U.S. economy remains strong, driven by record low unemployment, a firming housing market and robust consumer spending, which accounts for more than two-thirds of U.S. economic growth.
“No one feels that there’s any certainty on how we’re going to contain this virus and what the true ripple effects are going to be for the economy,” says Jonathan Corpina, senior managing partner at broker-dealer Meridian Equity Partners. “That uncertainty is causing fear in our communities and in the stock market. The fear can only stop when the U.S. government steps up and addresses this.”
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The yield on the 10-year Treasury, a closely watched barometer for the U.S. economy, briefly hit a record low, sliding to below 1.25% Thursday, down from 1.34%. The yield on the three-month Treasury bill edged up to 1.50%. The inversion in the yield between the 10-year and the three-month Treasurys is a red flag for investors because it has preceded the past seven recessions.
“People who keep trying to call a recession are missing the fact that the U.S. consumer feels comfortable about their financial position,” says Michael Antonelli, market strategist at Baird. “But if the virus spreads and hits U.S. shores, it will absolutely hit household sentiment. Once the U.S. consumer cracks, then the whole story around the stock market starts to falter.”
Financial markets have been spooked by concerns the deadly virus will hinder the longest U.S. economic expansion on record, which is approaching its 11th year. Data released Thursday showed the U.S. economy grew at a moderate 2.1% annualized pace in the fourth quarter, the Commerce Department said in its second estimate.
The Standard and Poor’s 500 dropped as much as 3.5%, putting the index into a correction in intraday trading after hitting a record Feb. 19. The Nasdaq, which had slumped more than 3% after the opening bell Thursday, was off more than 10% from its Feb. 19 all-time high in afternoon trading.
President Donald Trump announced late Thursday the United States was stepping up its efforts to combat the virus outbreak. Shortly after Trump spoke, the government announced that another person in the USA was infected – someone in California who didn’t have the usual risk factors of having traveled abroad or being exposed to another patient.
Trump said he didn’t believe a pandemic was inevitable, though health officials warned more infections are coming.
“The efforts by Trump to calm the markets are being overshadowed by the news from the CDC of a possible transmission of the virus in the U.S.,” Peter Cardillo, chief market economist at Spartan Capital Securities, said in a note. “We continue to recommend staying cautious.”
Investors have shifted money from stocks into safe havens such as gold in the wake of the outbreak. Gold climbed $7.60 to $1,650.70 per ounce.
Germany’s DAX lost 3.1% and the CAC 40 in Paris dropped 3.3%. In London, the FTSE 100 lost 3.5%. Japan’s Nikkei 225 index lost 2.1% while in Australia, the S&P ASX/200 dropped 0.8%. Hong Kong’s climbed 0.3%.
Contributing: The Associated Press