U.S. stocks deepened their selloff on Wednesday and the Dow effectively erased the last of its gains since U.S. President Donald Trump's 2017 inauguration, as repercussions of the coronavirus pandemic threatened to cripple economic activity.
The benchmark S&P 500 index ended off of its lows of the session but still down 5.2%, extending the recent plunge that ended Wall Street's longest-ever bull run. The S&P 500 is now down about 29% from its Feb. 19 record closing high.
With airports and hotels emptying and airlines asking staff to take unpaid leave to stem losses, the S&P 1500 airlines index sank 20.8%. Shares in Hilton, Marriott and Hyatt hotels fell by about 12% to 19%.
"The market's really reacting to fear and uncertainty and we don't think it's over until it finds a floor on stock prices. The floor will have to be found in containment of the viral spread and limiting the economic toll of the virus," said Nela Richardson, investment strategist at Edward Jones.
Trump's request for Congress to approve $500 billion in cash payments to taxpayers along with $50 billion in loans for airlines did little to stem the rout.
In one of the most dire forecasts yet issued for the potential hit from the coronavirus epidemic, a JP Morgan economist said the U.S. economy could shrink 4% this quarter and 14% next quarter, and for the year it is likely to shrink 1.5%.
The Dow Jones Industrial Average fell 1,338.46 points, or 6.3%, to 19,898.92, the S&P 500 lost 131.09 points, or 5.18%, to 2,398.1 and the Nasdaq Composite dropped 344.94 points, or 4.7%, to 6,989.84.
The day's selling at one point triggered another 15-minute trading cutout at a 7% decline in yet another day of volatile trading. The Cboe Volatility index ended up at 76.45.
The S&P 500's collapse into a bear market, among the fastest in history, has prompted some calls for a pause in trading.
"This market went from a position of where we were fearless back at the beginning of February to some days like today where you feel hopeless about what's going on in the market," said Wayne Wicker, chief investment officer of Vantagepoint Investment Advisers.
U.S. crude futures fell nearly 17% on Wednesday having touched their lowest in 18 years, while the S&P 500 energy sector closed at its lowest since early 2003.
GLOBAL MARKETS TUMBLE
Global equities tumbled further on Wednesday, with bond and gold prices also sliding in an unusual tandem, as markets grappled with the scale of government programs aimed at softening the economic shockwave from the coronavirus.
Traders struggled to sort out various moves by governments and global central banks to shore up economies bracing for what looks likely to be a short but deep global recession from a still growing pandemic.
Heavy demand for U.S. Treasury securities and the difficulty of the market to function as a vehicle for price discovery was creating dislocations, said Marvin Loh, senior global macro strategist at State Street.
"The ability in the Treasury market to transact the type of volume that they normally do is very pressed," Loh said.
"The more and more intense and volatile this environment gets, for me, the harder it is to see it function until we get a little bit of calm," he said.
Rapidly rising yields for Treasuries and German bunds, the benchmark for euro zone lending, have made cash the only risk-free asset, said Ulrich Leuchtmann, head of FX and commodity research at Commerzbank in Frankfurt.
"This is not just a financial markets crisis; it is a real economic crisis and therefore the fact that this demands extremely high fiscal responses makes even those usual safe- havens more difficult to hold," Leuchtmann said.
Estimates for the duration of the damage extend into the summer. Japan already is in a recession, a downturn is imminent in Europe and a U.S. recession will start in the second quarter, a report from IHS Markit said.
The coronavirus has raised the prospect of the steepest ever annual fall in oil demand, Goldman Sachs said. U.S. crude futures plummeted to an 18-year low and Brent hit more than 16-year low as travel and social lockdowns slammed demand.
Certain correlations are breaking down in the markets as typical safe-haven assets sell off, said Yousef Abbasi, global market strategist at INTL FCStone Financial Inc in New York.
"During a dramatic risk-off situation you would expect to see at least a little bit of a bid in bonds or maybe in gold, but we're seeing the opposite," Abbasi said.
"Despite the continued pain in equities, the safe-haven asset correlation seems to be now trading with risk assets, rather than the inverse to them," he said.
A repricing of in the Treasury market added to anxiety about spread of the cornavirus, while the plunge in oil prices did not help, said Nela Richardson, investment strategist at Edward Jones.
"The trigger was really the global fiscal response to the pandemic. In the long term its good news but the short term response in Treasuries is how are we going to pay for it?"
Bond prices tumbled, instead of rising, as investors sold to raise cash. Yields on the benchmark 10-year U.S. Treasury yield rose to 1.2080%, after hitting 1.266%.
In Europe, the gap between German and other euro zone bond yields widened, with investors demanding higher premiums to hold anything but German debt.
Ten-year French government bonds yielded 69 basis points more than their German counterparts, the most since April 2017. The gap between 10-year German and Dutch debt grew as wide as 37 basis points, the most since July 2015.
U.S. gold futures settled 3.1% lower at $1,477.90 an ounce.
"Gold continues to suffer from risk-off panics in the market, trading back below $1,500 level," said Tai Wong, head of base and precious metals derivatives trading at BMO.
"Liquidity here, as in most markets, is deeply compromised and we expect to see continuing volatility, mood-driven swings," Wong said.
MSCI's gauge of stocks across the globe shed 5.06% and emerging market stocks lost 4.70%. The pan-European STOXX 600 index lost 3.92%.
European bourses tumbled, with indexes in London, Frankfurt and Paris plunged from 4% to 5%.
In Asia, the MSCI's broadest index of Asia-Pacific shares outside Japan dropped 4% to lows last seen in summer 2016, led by a 6.4% fall in Australia. Japan's Nikkei dipped 1.7%.
U.S. crude hit its lowest since March 2002, falling even after weekly government data that otherwise could have been supportive to prices. The draw on gasoline stockpiles and smaller-than-expected build in crude inventories showed that people were preparing ahead of business and school closings, analysts said.
U.S. crude fell $6.58 to settle at $20.37 a barrel as a 56% slide over the past 10 days marked the worst stretch over a similar period of time since the futures contract was launched in 1983.
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