Stock rise sharply on Wall Street following a 7-day rout
Stocks rose sharply on Wall Street Monday, clawing back some of the losses they took in a seven-day rout brought on by worries that the coronavirus outbreak will stunt the global economy.
The Dow Jones Industrial Average surged more than 700 points, while the benchmark S&P 500 climbed 2.7%, placing in on track for its best day since January 2019. The S&P 500 is coming off a weekly loss of 11.5%, its worst since October 2008 during the global financial crisis.
Traders work during the opening bell at the New York Stock Exchange (NYSE) on February 27, 2020 at Wall Street in New York City. (Photo by JOHANNES EISELE/AFP via Getty Images)
Despite the pickup in stocks, the bond market continued to signal worries among investors, who continued to favor low-risk assets. Bond prices climbed, pushing yields to more record lows. The yield on the 10-year Treasury note fell to 1.08% from 1.12% late Friday. That yield is a benchmark for home mortgages and many other kinds of loans. Gold, another traditional safe-haven asset, rose 2.1%.
The big bounce came after an especially wild day of trading on Friday in which the Dow sank more than 1,000 points before a late wave of buying left it down 350.
“We just got to an extremely oversold situation on Friday,” said Sam Stovall, chief investment strategist at CFRA. “Investors basically overdid the carnage and, as a result, set ourselves up for at least a near-term, reflex rally.”
The Dow climbed 747 points, or 3%, to 26,168 as of 12:45 p.m. Eastern time. The S&P 500 index rose 2.7% and the Nasdaq gained 2.8%. European benchmarks were mostly higher, and Asian markets rose broadly. The price of U.S. crude oil was up 5.2%.
The International Monetary Fund and World Bank announced simultaneously Monday that they are ready to help countries affected by the coronavirus through their emergency lending programs and other tools.
“We will use our available instruments to the fullest extent possible,” the IMF managing director, Kristalina Georgieva, and World Bank President David Malpass said in a joint statement. “International cooperation is essential.”
The statement echoed similar promises to act if necessary from some central banks, starting with the Federal Reserve on Friday and the Bank of Japan over the weekend. Some analysts now speculate that the Fed could cut rates sometime this week, before its next formal meeting March 17-18. Traders have priced in a 100% probability that the Fed will cut rates by a half-percentage point during or before its March meeting.
There were signs that the economic impact was continuing to mount. A measure of China’s manufacturing output plunged last month to its lowest level on record, as the viral outbreak closed factories and disrupted supply chains.
Separately, economists at Goldman Sachs slashed their forecasts for U.S. growth to just 0.9% in the first quarter and to zero for the April-June quarter. Goldman also is forecasting sharp interest rate cuts by central banks in the U.S., Canada, the U.K., Australia, India and South Korea.
Also the Organization for Economic Development, a research organization made up of mostly advanced economies, cut its world growth forecast in a report Monday. The OECD said that even if there are only limited outbreaks outside China, the global economy will grow just 2.4% this year, the weakest since the financial crisis in 2009. That forecast matches several private estimates.
If other countries are hit with outbreaks similar to China’s growth could fall as low as 1.5%, the OECD said.
The JP Morgan Global Manufacturing index posted the steepest drop last month since the recession year 2009. The index plunged to 47.2, lowest since May 2009, pulled down by cratering production in China.
In the United States, the Institute for Supply Management’s manufacturing index registered growth for the second straight month in February. But the reading was inflated by a sharp slowdown in supplier deliveries. Normally, decelerating deliveries is good news, a sign that the economy is booming and contractors are straining to keep up. Last month, it was signaling that the virus has badly disrupted supply chains.
For investors, the great amount of uncertainty over how consumer behavior and spending will be affected has been unsettling.
“It’s not a typical economic blow,” said Bill Strazzullo of Bell Curve Trading. “What if major cities are on some kind of a lockdown? What will that do to restaurants, entertainment, shopping, travel? It’s almost impossible to game this out.”
Last week’s rout knocked every major index into what market watchers call a “correction,” or a fall of 10% or more from a peak. Market watchers have said for months that stocks were overpriced and long overdue for another pullback. The last time the market had a drop of that size was in late 2018, when the trade war with China was escalating and investors were worried about rising interest rates.
Global financial markets have been rattled by the virus outbreak that began in central China and has been shutting down industrial centers, emptying shops and severely crimping travel all over the world. More companies are warning investors that their finances will take a hit because of disruptions to supply chains and sales.
The economic fallout of the outbreak is becoming increasingly evident in China, which has seen most of the 90,000 or so virus cases worldwide. Two new surveys showed a sharp drop in Chinese manufacturing in February as anti-virus controls shut down the world’s second-largest economy, but companies are confident activity will revive following government stimulus efforts.
Shoppers stocking up on everyday goods as fear over the coronavirus’ spread hits consumers helped lift shares in household goods companies. Costco jumped 8.9%. Walmart rose 6.5%. Procter & Gamble gained 3.2%.
Stocks in travel-related companies have been among the hardest-hit as the outbreak has led to canceled flights and disrupted vacation plans. Cruise operators continued to pile up losses Monday. Royal Caribbean Cruises fell 2.4%, Norwegian Cruise Line dropped 6.8% and Carnival fell 4.1%.
Given that the main economic impact so far of the virus outbreak is on the supply side of economies rather than on the demand side, questions are being asked as to whether looser monetary policy will have any meaningful impact.
“For all the talk of lower rates the one thing a rate cut can’t do is get people back to work and supply chains back running again,” said Michael Hewson, chief market analyst at CMC Markets.
Stimulus hopes nevertheless helped shore up markets in Asia earlier. The Nikkei 225 index closed 1% higher, while the Shanghai Composite index rose 3.2%. The benchmark for the smaller exchange, in Shenzhen, jumped 3.8%, while South Korea’s Kospi climbed 0.8%. The Hang Seng in Hong Kong climbed 0.6%.
In the United States, authorities have counted at least 80 cases of the virus, two fatal, and concern was driving some to wipe store shelves clean of bottled water, hand sanitizer and other necessities. Both deaths were men with existing health problems who were hospitalized in Washington state.
Oil prices have also slumped as traders price in the prospect of lower demand as a result of the virus outbreak. Last week, oil prices tanked by around 15%. On Monday, benchmark U.S. crude was up $1.89 to $46.65 per barrel. Brent, the international standard, rose $1.88 to $51.55.
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AP Economics Writers Christopher Rugaber and Paul Wiseman and AP Business Writers Bernard Condon and Pan Pylas contributed.