The Dow and the S&P 500 tumbled 3% on Tuesday in their fourth straight day of losses as the coronavirus spread further around the world and investors offloaded risky assets as they struggled to gauge the economic impact.
Both averages recorded their biggest four-day percentage losses since the massive sell-off in December 2018, while U.S. 10-year Treasury yields hit a record low..
The S&P 500 lost $2.138 trillion in market capitalization over the last four sessions, according to S&P Dow Jones Indices analyst Howard Silverblatt.
Fears of a pandemic escalated after the coronavirus spread to Spain and dozens of countries, from South Korea to Italy, accelerated emergency measures while Iran's virus death toll rose to 16, the highest outside China.
In the United States, the Centers for Disease Control and Prevention said Americans should prepare for possible community spread of the virus.
The flu-like virus has now infected more than 80,000 people, 10 times more cases than the SARS epidemic in 2003. Several European countries were dealing with their first infections, feeding worries about a pandemic.
The World Health Organization, however, has said the epidemic in China, where it began in December, peaked between Jan. 23 and Feb. 2 and has been declining since.
"The market's realizing that though the pace of the infections looked like it was slowing, it's still spreading globally," said Shawn Cruz, manager of trader strategy at TD Ameritrade in Jersey City, New Jersey.
While investors had hoped the economic impact of the virus would be contained to the first quarter, Cruz said many are now estimating that "it's going to have an impact on the first half of 2020 and probably beyond."
The Nasdaq ended the session 8.7% below its record closing high, reached last Wednesday, while the S&P finished 7.6% under its record close achieved the same day. A total 314 of the benchmark's 500 stocks were in correction territory, traditionally viewed as a 10% drop from their high.
The Dow ended the day 8.4% below its February 12 record close.
In the busiest trading day since December 21, 2018, volume on U.S. exchanges was 12.24 billion shares, compared with the 7.99 billion average for the full session over the last 20 trading days.
The Dow Jones Industrial Average ended down 879.44 points, or 3.15%, at 27,081.36 and the S&P 500 lost 97.68 points, or 3.03%, to finish at 3,128.21. The Nasdaq Composite dropped 255.67 points, or 2.77%, to 8,965.61.
The Cboe Volatility Index, known as Wall Street's fear gauge, climbed above 30 for the first time since December 2018 and closed at 27.85.
"For the first time in a while we're finally waking up to the fact that this issue could go on for a while and have a significant impact on Chinese and global economic growth and potentially the United States," said Randy Frederick, vice president of trading and derivatives for Charles Schwab in Austin, Texas.
"When people react to it because they don't travel or go to restaurants or go shopping, that'll have an immediate impact on the economy. It depends how long it goes and how wide the spread," he said.
The NYSE Arca Airline index closed down 5%, clocking its biggest three-day decline since October 2011. Delta Airlines Inc , down 6%, said on Tuesday that it expects U.S.-China flights to be suspended until the end of April and expanded its travel waiver to Seoul until April 30.
The Associated Press reported that a senior member of the International Olympic Committee said organizers are more likely to cancel the 2020 Olympics than to postpone or move them if the coronavirus makes it too dangerous to hold in Tokyo.
Only 10 S&P stocks advanced on the day, while all of the S&P's 11 industry sectors fell. The energy sector was the biggest loser, with a more than 4% dip as oil prices tumbled.
Marriott International was the S&P's biggest percentage decliner, down almost 8%, and other travel stocks such as Tripadvisor, down 4.7%, and Norwegian Cruise Line Holdings, down 7.7%, also underperformed sharply.
Mastercard Inc shares fell 6.7%, also putting it among the S&P's biggest percentage decliners.
HP Inc, the S&P's biggest boost, pared early gains but still closed up 5.7% after saying it would step up efforts to slash costs and buy back stock as it sought investor support to defend against a $35 billion takeover offer from U.S. printer maker Xerox Holdings Corp.
Declining issues outnumbered advancing ones on the NYSE by a 7.42-to-1 ratio; on Nasdaq, a 6.24-to-1 ratio favored decliners.
The S&P 500 posted four new 52-week highs and 43 new lows; the Nasdaq Composite recorded 28 new highs and 230 new lows.
Meanwhile, global stocks and oil prices also tumbled again and the benchmark U.S. debt yield hit a record low on growing concern about the effects of the spread of coronavirus on the global economy.
The Japanese yen strengthened against the dollar for a third session running, in a sign that traders are in search of relatively safer assets.
The pan-European STOXX 600 index lost 1.76% and MSCI's gauge of stocks across the globe shed 2.31%.
MSCI's broadest index of Asia-Pacific shares outside Japan closed 0.14% higher, while Japan's Nikkei futures lost 0.34%.
BET ON RATE CUTS
The risks are such that bond markets are betting that central banks will have to ride to the rescue with new stimulus.
Futures for the Federal Reserve funds rate have surged in the last few days to price in a 50-50 chance of a quarter-point interest rate cut as early as April. In all, they imply more than 50 basis points of reductions by year end.
The indication of falling U.S. rates hit the dollar against a basket of its peers.
"The potential for the economic fallout from the virus to wash up on U.S. shores has cooled the dollar’s rally ... by knocking Treasury yields to multiyear lows," said Joe Manimbo, senior market analyst at Western Union Business Solutions, adding that the downward pressure also came from higher expectations for the Federal Reserve to deliver more interest rate cuts.
The dollar index fell 0.361%, with the euro up 0.27% at $1.0881.
The yen strengthened 0.54% versus the greenback to 110.15 per dollar. Sterling was last trading at $1.3002, up 0.58% on the day.
The rush to bonds dragged yields on 10-year U.S. Treasury notes to a record low of 1.307%. The U.S. benchmark last rose 11/32 in price to yield 1.3421%, down from 1.377% late on Monday.
The 30-year bond set a fresh record low at 1.786 and last rose 17/32 in price to yield 1.8135%.
For the first time, the 10-year yield on Municipal Market Data’s benchmark scale for top-rated, tax-exempt municipal bonds fell under 1% to .98%.
Gold ran into profit-taking after hitting a seven-year peak overnight, and last dropped 1.6% to $1,634.59 an ounce.
Oil prices continued to fall as demand concerns linked to the virus' spread outweighed supply cuts.
U.S. crude fell 3.11% to $49.83 per barrel and Brent was last at $54.76, down 2.74% on the day.
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