S&P 500 sinks 7%, causing trading halt, on recession fears

News

Traders work on the floor at the opening bell of the Dow Industrial Average at the New York Stock Exchange on March 18, 2020 in New York. – Wall Street stocks resumed their downward slide early Wednesday as the economic toll mounts from the rapid near-shutdown of key industrial and services sectors.About 15 minutes into trading, the Dow Jones Industrial Average stood at 20,040.66, down around 1,200 points or 5.6 percent. (Photo by Bryan R. Smith / AFP)

NEW YORK (AP) – Stocks sank 7% on Wall Street Wednesday, triggering another temporary halt to trading and wiping out the optimism and big gains sparked the prior day by Washington’s promises for massive aid for the economy.

Markets have been incredibly volatile for weeks as Wall Street and the White House acknowledge the rising likelihood that the coronavirus outbreak will cause a recession. The typical day this month has seen the stock market swing up or down by 4.9%. Over the last decade, it was just 0.4%.

The Dow Jones Industrial Average has lost all its gains since President Donald Trump’s inauguration. The S&P 500, which dictates how 401(k) accounts perform much more than the Dow, is down more than 30% from its record set last month.

As big swaths of the economy retrench while much of society comes to a halt in an attempt to slow the spread of the virus, investors have clamored for the U.S. government, Federal Reserve and other authorities around the world to support the economy until it can begin to reopen.

They got a big shot of that Tuesday, when the Trump administration briefed lawmakers on a program that could surpass $1 trillion and the Fed announced its latest moves to support markets.

But the number of infections keeps shooting higher, which creates more uncertainty about how badly the economy is getting hit, how much profit companies will make and how many companies may go into bankruptcy due to a cash crunch.

Worldwide, more than 200,000 have been infected and the virus has killed more than 8,000.

For most people, the coronavirus causes only mild or moderate symptoms, such as fever and cough, and those with mild illness recover in about two weeks. Severe illness including pneumonia can occur, especially in the elderly and people with existing health problems, and recovery could take six weeks in such cases.

“The volatility is going to be here to stay,” said Brian Nick, chief investment strategist at Nuveen. “It’s about the virus and not the economic response.”

Wednesday’s selling swept markets around the world. Benchmark U.S. oil fell more than 15% after dropped below $25 per barrel for the first time since 2002. European stock indexes lost more than 4% following broad losses in Asia. Even prices for longer-term U.S. Treasurys, which are seen as some of the safest possible investments, fell as investors sold what they could to raise cash.

The bond market is also operating under strain, and it hasn’t been this difficult for buyers to find sellers at reasonable prices since the financial crisis of 2008, said Gene Tannuzzo, deputy global head of fixed income at Columbia Threadneedle Investments.

Investors are selling their highest-quality bonds to raise cash, thinking they will be the easiest to sell and will hold up the best. That’s paradoxically undercutting their prices further.

Also exacerbating moves is so many traders making these trades not from their office.

“I’m calling the Citigroup dealer, who’s on his home Wi-Fi with his kid in the living room,” he said. “That causes gaps” in pricing.

“These are truly unprecedented events with no adequate historical example with which to precisely anchor our forecast,” Deutsche Bank economists wrote in a report Wednesday.

With all the uncertainty and early evidence that China’s economy was hit much harder by the virus than earlier thought, they now see “a severe global recession occurring in the first half of 2020.”

But they also are still forecasting a relatively quick rebound, with activity beginning to bounce back in the second half of this year in part because of all the aid promised from central banks and governments.

The Dow Jones Industrial Average was down 1,660 points, or 7.8%, as of 1 p.m. Eastern time. If stays there, it would be the eighth straight day the Dow has moved by more than 1,000 points.

All the uncertainty has pushed many people toward safety. Last month, investors pulled $17.5 billion out of stock mutual funds and exchange-traded funds, even though stocks set all-time highs in the middle of the month. Money-market funds, meanwhile, drew $25.5 billion, according to Morningstar.

That was all before the market’s sell-off accelerated this month, as broad swaths of the economy shut down in hopes of better containing the outbreak. Restaurants have closed to dine-in customers, planes are parked and sports arenas have been dimmed. Goldman Sachs strategists describe this month as “March Sadness.”

(Copyright 2020 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed without permission.)

Follow KOIN 6 for the latest news and weather

App

Download our FREE news and weather apps for iPhone, iPad and Android. You can also follow us on Facebook, Twitter and Instagram, and sign up for our email newsletters.

Copyright 2021 Nexstar Inc. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

Twitter News Widget

Trending Stories

Don't Miss

More Don't Miss