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Wall Street Suffers Biggest 1-Day Loss Since 2008 Financial Crisis

Wall Street Suffers Biggest 1-Day Loss Since 2008 Financial Crisis
(Marc Pinter/Dreamstime)

Monday, 09 March 2020 04:08 PM

Wall Street suffered its biggest one-day loss since the 2008 financial crisis on Monday and recession worries loomed large as tumbling oil prices and ongoing coronavirus fears prompted investor panic on the anniversary of the U.S. stock market's longest-ever bull run.

All three major U.S. stock averages plunged sharply at the opening bell, triggering trading halts put in place in the wake of 1987's "Black Monday" crash.

The Dow plummeted a record 2,000 out of the starting gate on the day marking the current bull market's 11th year. During the session, the Dow came about a 10th of a percent from confirming a bear market, or 20% below its record peak. The S&P 500 closed about 19% below its all-time high set on Feb. 19.

"It's certainly one for the history books," said Matthew Keator, managing partner in the Keator Group, a wealth management firm in Lenox, Massachusetts. "The markets are now pricing in a high probability of recession."

Peter Cardillo, chief market economist at Spartan Capital Securities in New York, agreed. "There's a lot of fear in the market and if the price of oil continues to move lower it's an indication that a global recession is not far away," Cardillo said.

The CBOE Volatility index, a gauge of investor anxiety, touched its highest level since December 2008. Benchmark 10-year U.S. Treasury yields briefly sank to 0.318%, a record low.

The sell-off began over the weekend when an oil supply pact between Saudi Arabia and Russia collapsed and both countries vowed to hike production amid weakening global demand due to the coronavirus and signs of an economic slowdown.

Oil prices registered their biggest one-day fall since the 1991 Gulf War, with Brent crude futures closing down 23.88% and front-month WTI falling 25.1%. That sent the S&P Energy index sliding 20.1%, its largest one-day drop on record.

Global markets were already on edge as worldwide confirmed cases of COVID-19 surged past 110,000, causing widespread supply disruption and large-scale quarantine measures as governments scramble to contain the outbreak.

The Dow Jones Industrial Average fell 2,013.76 points, or 7.79%, to 23,851.02, the S&P 500 lost 225.81 points, or 7.60%, to 2,746.56 and the Nasdaq Composite dropped 624.94 points, or 7.29%, to 7,950.68.

All 11 major sectors of S&P 500 ended the session deep in red territory, with energy and interest rate-sensitive financial stocks suffering the largest percentage losses. Boeing Co was the biggest drag on the Dow, tumbling 13.4% following the Federal Aviation Administration's (FAA) rejection of the planemaker's proposal regarding wiring systems in place on its grounded 737 MAX aircraft.

Apple Inc shares fell 7.9% after data showed the company sold fewer than 500,000 smartphones in China in February amid the coronavirus crisis. Chipmakers registered their largest drop since October 2008, with the Philadelphia SE Semiconductor index falling 8.3%.

Declining issues outnumbered advancing ones on the NYSE by a 17.86-to-1 ratio; on Nasdaq, a 19.11-to-1 ratio favored decliners.

The S&P 500 posted one new 52-week high and 229 new lows; the Nasdaq Composite recorded nine new highs and 1,049 new lows. Volume on U.S. exchanges was 17.22 billion shares, compared with the 11.05 billion average over the last 20 trading days.

GLOBAL CHAOS CONTINUES

Global stock markets plunged and oil prices tumbled by as much as a third after Saudi Arabia launched a price war with Russia, sending investors already spooked by the coronavirus outbreak fleeing for the safety of bonds and the Japanese yen.

A benchmark pan-Europe index entered bear market territory and a 7% slide in the S&P 500 at the open on Wall Street triggered a circuit-breaker put in place after the financial crisis a decade ago, halting U.S. stock trading for 15 minutes.

The yield on the 10-year U.S. Treasury note slid as low as 0.318% - a level unthinkable just a week ago - and German government debt yields set fresh record lows as investors rushed to cut risk assets and snap up safe-havens. Gold briefly topped $1,700 an ounce for the first time since 2012 and is up more than 10% so far this year.

The rout's depth, sparked after Saudi Arabia stunned markets on Sunday with plans to hike oil production sharply following the collapse of the Organization of the Petroleum Exporting Countries' supply-cut agreement with Russia, unnerved investors.

"The oil price plunge adds a huge disruptive dynamic to markets that are already very fragile," said Paul O'Connor, multi-asset head at Janus Henderson in London.

"We are seeing this week, finally, a full-scale liquidation and signs of capitulation, full-scale panic - we see this in every asset," O'Connor said.

Mike Loewengart, managing director of Investment Strategy at E*TRADE Financial Corp, said in an email that as markets move at breakneck speeds wide price swings are never comfortable.

"Consistent patterns of whipsawed equities and plummeting Treasury yields have certainly unnerved investors and the latest domino to fall is severe oil losses," Loewengart said.

"No doubt, many are taking a hard look at their portfolio."

Jim Vogel, interest rate strategist at FHN Financial in Memphis, Tennessee, said "nobody thought that Saudi Arabia would start a price war. Suddenly you have to re-evaluate what else could impact this."

Saudi Arabia's grab for market share was reminiscent of a drive in 2014 that sent prices down by about two-thirds, while the renewed plunge on Wall Street came exactly 11 years after U.S. stocks touched bottom during the financial crisis.

Brent and U.S. crude futures slid $14 a barrel to as low as $31.02 and $27.34 in volatile trade.

Both crude benchmarks recouped some losses but still fell almost 25% in their biggest daily drop since 1991, the start of the first Gulf War.

Brent fell $10.91 to settle at $34.36 a barrel, while U.S. crude settled down $10.15 at $31.13 a barrel.

Equity markets in Frankfurt and Paris tumbled about 8.5% and London tanked 11%. Italy's main index slumped 14.3% after the government over the weekend ordered a lockdown of a northern swath of the country, including the financial capital, Milan.

The pan-regional STOXX 600 fell into bear territory from an all-time high in February. Oil stocks bore the brunt of losses, with giants BP 19.5% lower and Royal Dutch Shell off 18.2% as the European energy sector slid to its lowest since 1997.

The losses in Europe amplified declines in Asia. MSCI's broadest index of Asia-Pacific shares ex-Japan lost 4.4% in its worst day since August 2015 and Japan's Nikkei dropped 5.1%. Australia's commodity-heavy market closed down 7.3%, its biggest single-day fall since 2008.

'DO SOMETHING!'

Investors piled into safe-haven debt, driving the 30-year U.S. Treasury yield below 1% on bets the Federal Reserve will cut interest rates by at least 75 basis points when policymakers meet next week. The Fed last week cut rates by half a percentage point after an emergency meeting.

The number of people worldwide infected with the coronavirus rose above 111,600, and 3,800 have died.

There were mounting worries that debt-heavy U.S. oil producers would be unable to meet financial obligations as the drop in prices slashes their revenue.

"No one expected this. We were trending downwards, but no one expected this magnitude," said Donald Selkin, chief market strategist at Newbridge Securities in New York.

"The lower oil price is going to decimate oil stocks, the oil industry, the shale producers and the record low interest rates are going to decimate the banks," he said.

ECB MEETING

The European Central Bank meets on Thursday and will be under intense pressure to act, but rates are already deeply negative.

The 10-year Bund yield - the euro zone's leading safe asset - fell to a record low of -0.906%, while inflation expectations for the euro zone sank below 1% for the first time.

Data suggested the global economy toppled into recession this quarter. Figures from China over the weekend showed exports fell 17.2% in January-February from a year earlier.

The fall in U.S. yields and Fed rate expectations pushed the dollar to its largest weekly loss in four years before it recovered some ground..

The dollar extended its slide to 101.20 yen, depths not seen since late 2016. It was last down 3.1% at 102.07.

The euro shot to the highest in over 13 months at $1.1492 and was last at $1.1431.

Gold retreated from the $1,700 level it briefly touched as investors sold bullion to cover margin calls in plummeting securities, overshadowing the metal's safe-haven status.

U.S. gold futures settled up 0.2% at 1,675.70 an ounce.

© 2020 Thomson/Reuters. All rights reserved.


   
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Wall Street took a nose-dive on Monday as recession worries loomed large while tumbling oil prices and ongoing coronavirus fears prompted investor panic on the anniversary of the U.S. stock market's longest-ever bull run.
stock, market, wall street, oil, virus
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2020-08-09
Monday, 09 March 2020 04:08 PM
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