Wall Street plunges on pandemic fears

February 25, 2020 07:22
Traders work on the floor at the New York Stock Exchange on Monday. Photo: Reuters

The S&P 500 and the Dow Jones Industrial Average suffered their biggest one-day percentage losses in two years after a surge in coronavirus cases outside China fanned worries about the global economic impact of a potential pandemic, Reuters reports.

Investors sold riskier assets and rushed to traditionally safer bets such as gold and US Treasuries after countries including Iran, Italy and South Korea reported a rise in virus cases over the weekend even as China eased curbs with no new cases reported in Beijing and other cities.

The benchmark S&P 500, which represents over 44 percent of the market capitalization of all global equities, lost US$927 billion of its value on Monday alone and US$1.33 trillion since its closing high on Wednesday last week, according to S&P Dow Jones Indices senior analyst Howard Silverblatt.

The S&P and the blue-chip Dow turned negative for the year to date and the Dow dropped more than 1,000 points on the day for only the third time in its history.

The technology-heavy Nasdaq fell 3.71 percent, the biggest daily percentage drop of the three major averages.

“We’re not likely to make any progress higher until we have evidence the spread of the coronavirus is decelerating,” said Mark Luschini, chief investment strategist at Janney Montgomery Scott in Philadelphia.

The Dow Jones Industrial Average fell 1,031.61 points, or 3.56 percent, to 27,960.8, the S&P 500 lost 111.86 points, or 3.35 percent, at 3,225.89 and the Nasdaq Composite dropped 355.31 points, or 3.71 percent, to 9,221.28.

All of the 11 major S&P sectors closed in the red, led by the energy sector’s 4.7 percent decline and followed by a 4.2 percent drop in technology stocks.

Apple Inc. slid 4.8 percent as data showed sales of smartphones in China tumbled by more than a third in January.

Investors bet on bonds

Treasury yields fell to their lowest levels since 2016 as investors sought safety in government bonds, while the yield curve inversion between the three-month and 10-year US Treasuries deepened in what is often viewed as a recession predictor.

Adding to worries, Goldman Sachs slashed its US growth forecast on Sunday and predicted a more severe impact from the epidemic.

The CBOE Volatility Index, a gauge of investor anxiety, registered its biggest one-day jump since February 2018 and ended the day at 25.03, its highest closing level since January 2019.

“There was this underlying concern that was out there, and obviously over the weekend, it just escalated,” said Stacey Gilbert, portfolio manager for derivatives at Glenmede Investment Management in Philadelphia.

After Monday’s nosedive, the S&P closed almost 5 percent below its record closing high, achieved last week, while the Nasdaq ended 6 percent off its peak close and the Dow ended the day 5.4 percent below its record close.

Gold highest in 7 years

Gold soared as much as 2.8 percent to its highest level in seven years.

Spot gold was up 1.7 percent at US$1,671.35 per ounce by 1:59 p.m. EST (1859 GMT). The session high of US$1,688.66 was the highest level since January 2013.

US gold futures settled 1.7 percent higher at US$1,676.60 an ounce.

“The markets are spooked right now,” said Bob Haberkorn, senior market strategist at RJO Futures, citing coronavirus fears.

“The upswing in the gold price is being accompanied by further ETF inflows. Speculative financial investors have also increased their bets on rising gold prices significantly,” Commerzbank analysts said in a note.

“However, this also means that the gold price upsurge is on shaky ground, so falls can be expected in the event of profit-taking.”

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