Markets have now completed a brutal seven-day losing streak — the worst since the 2008 financial crisis, with major benchmarks plummeting in panic selling related to the escalating coronavirus outbreak.
The illness continues its spread across multiple countries, with Nigeria and Mexico reporting their first cases on Friday, and the death toll mounting in places like Italy and Iran. On Friday, the World Health Organization, which has shied away from formally declaring the pathogen a pandemic, issued a dire warning that “global level” risks were growing.
Meanwhile, calls are growing for central banks and governments to coordinate a policy response amid the darkening global growth outlook. Federal Reserve chair Jerome Powell pledged on Friday to “use our tools” to backstop the U.S. economy as the coronavirus fears roil markets and jeopardize growth.
“On the back of COVID-19 news, we have lowered our forecast for GDP growth this year by another tenth to 1.6%,” wrote analysts at Bank of America late Friday — calling for three quarters of "growth recession."
The bank added that “broken global supply chains will deplete inventories and delay investment. But what concerns us more is an adverse feedback loop between consumers and markets. The likelihood of a Fed cut has increased meaningfully. Depending on the spread of the virus and the market reaction, the Fed could act swiftly and aggressively.”
For perspective, the S&P, Dow and Nasdaq all saw their worst February since 2009. For the S&P, it was the 3rd worst February performance going back to 1960, when it shed 8.41%, according to Yahoo Finance data. The Dow also completed its third-worst month since 1930 (a roughly 10% drop), while the Nasdaq saw its fifth-worth February, going all the way back to 1972 (when it fell over 6%).
Treasury yields continue to set record lows, with the 10-year seeing the biggest February drop since 1986.
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4:00 p.m. ET: Stocks end a grueling seven-day losing streak
Trader Tommy Kalikas works on the floor of the New York Stock Exchange, Monday, Jan. 27, 2020. Stock tumbled at the open on Wall Street following a sell-off in markets in Europe and Japan as investors grow more concerned about the potential economic impact of an outbreak of a deadly coronavirus. (AP Photo/Richard Drew)
The coronavirus has gone global, and driven investors off the deep end. Although major benchmarks pared the session’s steep losses after Fed’s Powell pledged to act, they are well off last week’s record highs, and seven days deep into panic selling.
Here’s where the market finished Friday’s session:
Crude oil (CL=F): $45.07 per barrel, off $2.02 or -4.29%
Gold (GC=F): $1,579.20 per ounce, off $63.30, or -3.85%
10-year Treasury (^TNX): yielding 1.1270, down -0.1720
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3:20 p.m. ET: Wall Street starts banking on a Fed cut
Federal Reserve Chairman Jerome Powell pauses as he testifies before the Senate Banking Committee on Capitol Hill in Washington, Wednesday, Feb. 12, 2020, during a hearing on the Monetary Policy Report. (AP Photo/Susan Walsh)
Barclays, Deutsche Bank and Morgan Stanley all issued Federal Reserve easing calls on Friday, immediately after the Fed chief vowed to “act as appropriate” to counteract the impact of the coronavirus.
Barclays says the vicious sell-off “meets the bar” of a material change:
...we feel the deterioration in financial market conditions is likely to meet the FOMC's definition of a "material change" to the outlook and we now forecast 25bp rate cuts at the March and April FOMC meetings.
Deutsche sees an identical timeline for rate cuts:
To offset some of this shock and provide insurance against downside risks, we anticipate that the Fed will cut rates by at least 50bps over the coming months, with our new baseline forecast expecting 25bp cuts at the next two meetings in March and April. More accommodation could well be needed depending on the severity and duration of the disruptions from the coronavirus
...and Morgan sees the same, but with the horizon beyond March dependent on the virus and investor behavior:
A 25bp Fed rate cut is coming at the March meeting, in our view. Increasing uncertainty about the economic outlook means future rate moves beyond March are conditional on developments with the coronavirus and on developments in financial markets, and particularly in credit markets.
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2:30 p.m. ET: Powell vows to ‘act as appropriate’ in face of virus
Amid mounting pressure on the Fed, the central bank’s chair Jerome Powell pledged on Friday to “use our tools” to backstop the U.S. economy as the coronavirus fears roil markets and jeopardize growth:
The fundamentals of the U.S. economy remain strong. However, the coronavirus poses evolving risks to economic activity. The Federal Reserve is closely monitoring developments and their implications for the economic outlook. We will use our tools and act as appropriate to support the economy.
Stocks are still hunkered in the red, but off their lows; Yields on 10-Year and 30-Year Treasuries (^TNX) tumbled to new record lows again on Friday.
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1:40 p.m. ET: Hotel Negative Rates costs visitors a cool $14T
Deutsche’s Torsten Slok is becoming indispensable with his charts. His latest shows that negative-yielding debt (a hobby-horse of President Donald Trump’s) is now around $14 trillion — which means lucky investors are paying vast sums to institutions for holding their money safely:
Global negative interest rates, in market value and as a share of outstanding bonds
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1:00 p.m. ET: Goldman sees ‘short-lived’ growth pullback
Morgan Stanley expects the coronavirus to see a “continued slowdown” in Chinese infections that will see the local economy spring back. Yet it says supply chain disruptions will persist, and consumer spending will take a hit:
Our analysis shows effects on quarter-on-quarter annualized global GDP growth of -5pp in Q1 and -2pp in Q2, followed by a rebound in the second half of 2020, leaving our full-year global growth forecast at about 2%. All else equal, this would imply a short-lived global contraction that stops short of an outright recession.
Amplifying calls for Fed action, the bank also expects some global easing — which includes a 75 bp cut by the Fed that between March and June. “Although moderate Fed rate cuts are unlikely to be very powerful, the committee will probably be reluctant to disappoint market expectations for substantial rate cuts for fear of tightening financial conditions further,” Morgan said.
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Noon ET: Stocks claw back losses
Markets are off their lows, but with no real change in the coronavirus outlook, the comeback isn’t likely to last. Apple (AAPL) and Microsoft (MSFT) have rebounded strongly, helping to yank the Dow off its troughs — but in an odd turn of events bullion is also being dragged lower:
10-year Treasury (^TNX): yielding 1.1630, off -0.1360
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11:25 a.m. ET: Canaccord: Enough selling already
This week’s bloodbath in markets has some looking for a bottom. While we haven’t reached it yet, investment firm Canaccord sees “significant evidence” that an oversold rally is on the way:
We got the correction we have been looking for, the market has now become washed out enough to generate a meaningful reflex rally, but at some point in the next month we expect the major market indices to test the lows. As they do, our more intermediate-term indicators should be quite oversold/pessimistic and it is at that point we plan to put more offense back on the field.
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10:35 a.m. ET: WHO declares coronavirus a “global level” threat
Via Reuters, the risk of spread and impact of the coronavirus is now very high at a "global level,” according to World Health Organization chief Tedros Adhanom Ghebreyesus.
It underscores the gravity of the situation, given that the WHO has shied away from declaring a full-fledged pandemic, but it doesn’t tell investors anything they didn’t already know. Stocks are off their lows, but deep in negative territory.
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10:20 a.m. ET: Coronavirus impact could be ‘as bad as the financial crisis’
Workers wearing protective gears spray disinfectant as a precaution against the new coronavirus at a subway station in Seoul, South Korea, Friday, Feb. 28, 2020. Japan's schools prepared to close for almost a month and entertainers, topped by K-pop superstars BTS, canceled events as a virus epidemic extended its spread through Asia into Europe and on Friday, into sub-Saharan Africa. (AP Photo/Ahn Young-joon)
The market is firmly in the red, with coronavirus fears hammering investors. At one point, the Dow (^DJI) shed another 1000 points before stemming some of those losses, but all major benchmarks — including the S&P 500 (^GSPC) and the Nasdaq (^IXIC) — are all down by over 3%.
Capital Economics thinks the global economy’s shift toward services may come back to haunt global growth, and that means the outlook is...bleak, to say the least:
A key risk to economic activity is people avoiding public places like restaurants and cinemas, and these sectors make up a bigger share of global activity than a few decades ago. The structural changes in the global economy therefore make it more vulnerable to flu pandemics than in the past, underlining our view the economic effects of a severe pandemic could be as bad as those of the global financial crisis.
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9:45 a.m. ET: Debate heats up over what the Fed should do
Should central banks intervene to stem the market’s rout? It’s unclear what, if anything, another rate cut could do in an environment of already cheap liquidity (Japan and Europe already have negative rates), but calls are growing for the Federal Reserve to cut rates (no doubt President Donald Trump would be delighted).
On Friday, at least two current and former Fed officials said the growing coronavirus panic might warrant some action. However, Bleakley’s Peter Boockvar has a different take:
While rational people can argue whether the Fed should cut or not, what do you possibly think the ECB and BoJ can do with monetary policy with rates already negative (which has damaged bank profitability) and QE already ongoing?
Mexico confirmed its first case of coronavirus Friday morning sending the markets deeper into a correction. The Dow opened lower by nearly 800 points after tanking nearly 1,200 points Thursday.
Stock futures pointed to more pain ahead for markets Friday to cap off a brutal trading week, as the deadly coronavirus rocked sentiment around the world.
Here were the main pre-market moves, as of 7:10 a.m. ET:
S&P 500 futures (ES=F): 2,928.50, down 28.50 points or 0.96%
Dow futures (YM=F): 25,286, down 266 points or 1.04%
Nasdaq futures (NQ=F): 8,306.25, down 76.50 points or 0.91%
Crude oil (CL=F): $45.80 per barrel, down $1.29 or 2.74%
Gold (GC=F): $1,630.80 per ounce, down $11.70 or 0.71%
Thursday, the S&P 500 and Dow entered a correction, or fell more than 10% from their recent highs. The Dow tumbled nearly 1,200 points for its worst day ever, and the index is now on pace to close out its worst week since October 2008.
There are nearly 84,000 confirmed cases of coronavirus globally and more than 2,800 confirmed deaths. Japan has declared a state of emergency and Switzerland has banned gatherings of more than 1,000 people. The World Health Organization has yet to declare the outbreak as a pandemic, but officials warned Thursday it certainly has the potential to earn that label.
A screen shows the Dow Jones Industrial Average after the close of trading on the floor at the New York Stock Exchange (NYSE) in New York, U.S., February 27, 2020. REUTERS/Brendan McDermid
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Thursday, Feb. 27, 2020, 6:30 p.m. ET: Stock futures point to another volatile session Friday
U.S. equity futures initially suggested more volatility could come to the U.S. markets when they reopened on Friday.
On Thursday evening shortly after 6 p.m. ET, Dow futures (YM=F) were down 0.3%, S&P futures (ES=F) were down 0.4%, and Nasdaq futures (NQ=F) were down 0.3%.
By around 6:30 p.m. ET, contracts for the three indices had turned positive.
Financial markets plunged for the sixth consecutive day on Thursday, with coronavirus fears shaving over 1,100 points off the Dow (^DJI) — its biggest in history — and sending the S&P 500 (^GSPC) swooning to its fastest-ever correction.
“Global markets were down $1.83 trillion today, with the U.S. down $1.33 trillion,“ S&P Dow Jones’ Howard Silverblatt said in an email. He added that over the past six days, global markets erased $6 trillion in wealth with U.S. markets losing $4 trillion.
Investors took fright amid the first coronavirus case in the U.S. involving a person who didn’t travel to an infected country and didn’t knowingly interact with someone who did. Meanwhile, California’s governor said the state is monitoring more than 8,400 people who could possibly have the virus.
The virus continues to spread globally, with more than 82,000 cases and more than 2,800 deaths. The world’s biggest hot spots outside of China include Italy, South Korea, and Iran, where the death rate is higher than other hard-hit areas. Experts are becoming increasingly resigned to a worldwide spread of the disease, even as China’s new infections slow.
All of those developments hammered global markets.
S&P Correction
The last six days saw the S&P 500 drop by 10% from its all-time high at rate faster than it ever has before, according to Deutsche Bank Securities.
*To be clear, a “correction” is characterized by a 10% decline from a recent all-time high. And so, while Black Monday (Oct. 19, 1987) saw the market crash in a single day, the peak in that cycle actually occurred two months earlier in August.
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4:00 p.m. ET: Dow drops more than 1,100 points after news California is monitoring thousands of possible cases
S&P 500 (^GSPC): -4.42% or -137.63 points to 2,978.76
Dow (^DJI): -4.42% or -1,190.95 points to 25,766.64
Nasdaq (^IXIC): -4.61% or -414.29 points to 8,566.48
Crude oil (CL=F): -4.90% or -2.39 to $46.34 a barrel
Gold (GC=F): -0.10% or -1.60 to 1,641.50 per ounce
10-year Treasury (^TNX): -0.84% or -0.0110 to 1.2990
