Wall Street clobbered as crude plummets, virus crisis deepens

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 US stock market’s longest-ever bull run.

All three major US 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 points out of the starting gate on a day that marked the current bull market’s 11th year.

S&P 500 futures declined about 1 percent after the bell, briefly extending their loss to just over 20 percent from their record high on Feb. 19 and suggesting the bull market may have ended.

Investors generally consider a drop of 20 percent from a recent high to signify a bear market, raising the expectations of a drawn-out period of negative sentiment.

“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,” said Peter Cardillo, chief market economist at Spartan Capital Securities in New York.

Such fears have evaporated over US$5 trillion of the S&P 500’s market value in recent weeks.

“It’s a perfect storm. You’ve got a lot of uncertainty in terms of how far the virus will spread in the US. You layer onto this the oil price cut. The third thing is financial instability, in the sense that with yields falling as far and as fast as they’re falling,” said Chris Zaccarelli, chief investment officer at Independent Advisors Alliance.

The CBOE Volatility index , a gauge of investor anxiety, touched its highest level since December 2008.

Benchmark 10-year US Treasury yields briefly sank to 0.318 percent, 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 percent and front-month WTI falling 25.1 percent. That sent the S&P Energy index sliding 20.1 percent, 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.

Deep in red territory

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

In Asia, markets were set for a fraught session on Tuesday after Wall Street's losses, piling pressure on policy makers globally to short-circuit the panic.

“The collapse in oil prices and associated credit concerns for producers have added another negative layer to a market already on its knees over the COVID-19 outbreak,” said Rodrigo Catril, a senior FX strategist at National Australia Bank.

Circuit-breaker sought

“Talk of coordinated fiscal and monetary support is getting louder,” he added, noting US President Donald Trump was promising “major” steps to support the economy.

E-Mini futures for the S&P 500 were at least trying to steady, rallying 1 percent in Asia after an early slide.

Nikkei futures also came off lows, though they were still 600 points below Monday’s cash close.

“Without a circuit-breaker, there is a risk the volatility tightens global financial conditions and weakens economies,” said Kim Mundy, an international economist at CBA.

“Because of the risks, we expect central banks to cut policy interest rates further as well as use other, unconventional, monetary policy tools.”

The US Federal Reserve on Monday sharply stepped up the size of its fund injections into markets to head off stress.

Having delivered an emergency rate cut only last week, investors are fully pricing an easing of at least 75 basis points at the next Fed meeting on March 18, while a cut to near zero was now seen as likely by April.

Britain’s finance minister is due to deliver his annual budget on Wednesday and there is much talk of coordinated stimulus with the Bank of England.

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

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