Trader Peter Tuchman works on the floor of the New York Stock Exchange, March 9, 2020. The Dow Jones Industrial Average plummeted 1,500 points, or 6%, following similar drops in Europe after a fight among major crude-producing countries jolted investors already on edge about the widening fallout from the outbreak of the new coronavirus. (Photo: AP)
Stocks went into a steep slide Monday on Wall Street as a combination of coronavirus fears and a crash in oil prices spread alarm through the market, triggering the first automatic halt in trading in over two decades to let investors catch their breath.
The price of oil sank nearly 20% after Russia refused to roll back production in response to falling demand and Saudi Arabia signaled it will ramp up its own output. While low oil prices can translate into cheaper gasoline, they wreak havoc on energy companies and countries that count on petroleum revenue, including the No. 1 producer, the U.S.
The clash between the two giant oil producers came as Italy — the country hit hardest by the coronavirus in Europe — began enforcing a lockdown against 16 million people in north, the heart of its manufacturing and financial industries. The turmoil is expected to push Italy into recession and weigh on the European economy.
U.S. stocks edged closer to a bear market, defined as a drop of 20% from its record, while a measure of fear on Wall Street reached its highest level since the 2008 financial crisis. European stock markets fell even more sharply, and yields on U.S. Treasury bonds plunged to more record lows as investors kept on sinking money into seemingly safer places, even as the return on their investment sank closer and closer to nothing.
The S&P 500 plunged as much as 7.4% in the first few minutes after the opening bell, and losses were so sharp that trading was halted by the market’s circuit breakers, first adopted after the crash of October 1987 and modified over the years. After the 15-minute pause, stocks trimmed their losses, and the index was down 4.8%, shortly before noon.
The Dow Jones Industrial Average lost 1,255 points, or 4.9%, to 24,605 after briefly being down more than 2,000. The Nasdaq gave up 4.4%.
The market-wide circuit breakers have been triggered only once before, in 1997.
The carnage in the energy sector was particularly bad. With Brent crude oil falling nearly 19% to just under $37 a barrel and benchmark U.S. crude dropping to under $34, Marathon Oil, Apache Corp. and Diamondback Energy each sank more than 40%. Exxon Mobil and Chevron were on track for their worst days since 2008.
“We knew it was going to be a hot day,” said John Spensieri, head of U.S. equity trading at Stifel. He said that the mood was “organized chaos” in the morning but that the trading halt achieved what it was supposed to by stopping the slide.
The coronavirus has infected more than 110,000 people worldwide and killed around 3,900, leading to factory shutdowns, travel bans, closings of schools and stores, and cancellations of conventions and other gatherings.
While the crisis has eased in China, where the virus was first detected, fast-growing clusters have turned up in South Korea, Iran and Italy, and fears are mounting in the United States, where a giant cruise ship idling off the California coast with at least 21 infected people aboard was scheduled to dock in Oakland on Monday so that the thousands on the vessel could be whisked to U.S. military bases or their home countries for a 14-day quarantine.
After initially taking an optimistic view on the virus — hoping that it would remain mostly in China and cause just a short-term disruption — investors are realizing they probably underestimated it badly.
Including Monday’s drop, the S&P 500 has now lost 16.5% since setting a record last month. If it hits a 20% drop, it would mean the death of what’s become the longest-running bull market for U.S. stocks in history, an 11-year run. Monday marks the 11th anniversary of the market hitting bottom after the 2008 financial crisis.
A measure of fear in the U.S. stock market soared to its highest level since 2008. That means traders are more worried about upcoming swings in the S&P 500 than they were during the European debt crisis or the U.S.-China trade war.
The yield on the 10-year Treasury note plunged to 0.59%. Early last week, it had never been below 1%.
Traders are increasing betting that the Federal Reserve will cut interest rates back to zero to do what it can to help the virus-weakened economy, perhaps as soon as next week.
But doubts are rising about how effective lower rates can be this time. They can encourage people and companies to borrow, but they can’t restart factories, restaurants or theme parks shut down because people are quarantined.
The Federal Reserve has already cut its benchmark short-term rate to a range of 1% to 1.25%, leaving it little room to cut more.
“Central banks are a bit player in the current crisis,” Ethan Harris, global economist at Bank of America, wrote in a research report.
The clamor is growing louder for help from authorities besides central banks.
“Today’s market action may bang some heads together and actually start thinking about the constructive measures the government can take,” said Jacob Kirkegaard, senior fellow at the Peterson Institution for International Economics.
Among other things, Kirkegaard said, the government should make sure all Americans get paid sick leave and health care coverage for virus-related ills.