Stocks plunge as Wall Street, White House see recession risk
NEW YORK (AP) — The U.S. stock market plunged to its worst day in more than three decades as voices from Wall Street to the White House said the coronavirus may be dragging the economy into a recession.
Monday’s
12% drop for the S&P 500 means it has plummeted nearly 30% since
setting a record less than a month ago, and it’s at its lowest point
since the end of 2018. Losses were steep Monday, accelerating in the
last half hour of trading after President Donald Trump said the economy
may be headed for a recession and asked Americans to avoid gatherings of
more than 10 people.
The plunge came even though the Federal
Reserve rushed to announce a new round of emergency actions before
markets opened for trading Monday. The moves are aimed at propping up
the economy and getting financial markets running smoothly again, but
they may have raised fears even further. Investors are also waiting for
the White House and Congress to offer more aid to an economy that’s
increasingly shutting down by the hour.
The Dow Jones Industrial
Average plunged 2,997 points, or 12.9%, and, likewise, the S&P 500
had its worst loss since the Black Monday crash of 1987. It surpassed
Thursday’s loss of 10% for the Dow.
The market’s losses the last
few weeks are the steepest since the 2008 financial crisis dragged the
economy into the Great Recession. Trump and professional investors say
the stock market could bounce back strongly as soon as health experts
get the virus under control.
The problem is that no one knows
when that could be, and broad swaths of the economy are grinding closer
to a standstill in the meanwhile, from parked airplanes to the nearly
empty restaurant around the corner.
Monday’s selling began
immediately on Wall Street, sharp enough to trigger a temporary trading
halt for the third time in the last two weeks. Losses were even sharper
in Europe before paring, and major indexes there fell between 4% and 6%.
Oil lost 9.5% and has more than halved this year. The world’s brightest
spot may have been Japan, where the central bank announced more
stimulus for the economy, and stocks still lost 2.5%.
“It’s
impossible to say when and how we’re going to reach bottom,” said
Danielle DiMartino Booth, chief executive officer of Quill Intelligence.
The
spreading coronavirus is causing businesses around the world to shut
their doors. While that can slow the spread of the virus, it’s also
taking cash out of the pockets of businesses and workers. That has
economists slashing their expectations for upcoming months, and Wells
Fargo Securities said Monday it now projects the U.S. economy will fall
into a recession in the April-through-June quarter. Joel Prakken, chief
U.S. economist at IHS Markit, projects the economy will shrink at a 5.4%
annualized rate during the quarter, which would be its worst
performance since the depths of the Great Recession.
The best-case
scenario for many investors is that the economic shock will be steep
but short, with growth recovering later this year after businesses
reopen. Pessimists, though, are preparing for a longer haul. The wide
range of possible outcomes has Wall Street swinging wildly, and the
S&P 500 had its third straight day where it moved more than 9% — two
down and one up.
Strategists at Goldman Sachs say the S&P 500
could fall as low as 2,000 in the middle of the year, which would be a
41% drop from its record set just a month ago. Goldman expects the index
to rally back to 3,200 at year end.
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. But
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.
American Airlines and United Airlines both
announced steep cutbacks to flights over the weekend as customers cancel
trips and the U.S. government restricts travel. Other travel companies
have also seen sharp drops in demand from customers. Restaurants, movie
theaters and other businesses that depend on drawing crowds appear to be
next to get squeezed. Several states and the country’s largest city are
ordering restaurants to close their doors to dine-in customers and do
only takeout and delivery.
The Federal Reserve has been trying to
do what it can to help the economy, and over the weekend it slashed
short-term interest rates back to their record low of nearly zero.
It
also said it also will buy at least $500 billion of Treasury securities
and $200 billion of mortgage-backed securities to help calm the
Treasury market, which is a bedrock for the world’s financial system and
influences stock and bond prices around the world. Trading in the
market began to get snarled last week, with traders saying they saw
disconcertingly large gaps in prices offered by buyers and sellers.
“Despite
whipping out the big guns,” the Fed’s action is “falling short of being
the decisive backstop for markets,” said Vishnu Varathan of Mizuho Bank
in a report. “Markets might have perceived the Fed’s response as panic,
feeding into its own fears.”
The yield on the 10-year Treasury
slid to 0.73% from 0.95% late Friday, a sign that investors are flocking
into investments seen as safe.
The Fed action came as major
economies expanded travel curbs and closed more public facilities,
raising the cost of efforts to contain the outbreak that has infected
about 175,000 people worldwide. China, where the coronavirus emerged in
December, accounts for about half of those, but a dozen other countries
have more than 1,000 cases each.
The S&P 500 fell 324.89
points, or 12%, to 2,386.13. The Dow Jones Industrial Average lost
2,997.10 points, or 12.9%, to 20,188.52, and the Nasdaq lost 970.28, or
12.3%, to 6,904.59.
After the Fed unloaded its bazooka on markets
late Sunday, investors are looking for more help from the U.S.
government, according to Brian Nick, chief investment strategist at
Nuveen. That includes targeted aid to industries hit hard by the virus,
as well as checks sent out to households.
“We have to be careful
that small businesses don’t get forgotten,” said Jason Pride, chief
investment officer of private wealth at Glenmede.
Lower interest
rates following the Fed’s moves will help them borrow cash at more
affordable prices, but they’ll need more direct help.
Volatility
appears to be the new normal following a dizzying week in which the Dow
twice fell by more than 2,000 points and also record its biggest point
gain ever — 1,985 points on Friday. Last week’s drops also confirmed the
end of the longest-ever bull market on Wall Street, which emerged from
the financial crisis and ran for nearly 11 years.
Many investors expect markets to remain volatile as long as the number of new infections keeps accelerating.
“The
real fear is going to be if people are going into hibernation, how long
will that be, and we have no way of having any knowledge to answer that
question,” said Adam Taback, chief investment officer for Wells Fargo
Private Wealth Management.
“This is not a two-week event,” he added. “This is going to be playing out in the markets for many more weeks than two weeks.”
AP Business Writer Joe McDonald contributed from Beijing. The Associated Press receives support for health and science coverage from the Howard Hughes Medical Institute’s Department of Science Education. The AP is solely responsible for all content.