Global stock market slid for the sixth consecutive day on Thursday as the S&P 500 plunged to its worst loss in nearly nine years and investors around the world were increasingly concerned that the coronavirus epidemic would cause a recession as it squeezes corporate profits.
The S&P 500, which hit a record last Wednesday, slipped 4.4%, its worst day since August 2011. The index is down 12% since this peak, entering what is called a correction – a drop of at least 10% which signals a greater liquidation than a few days of pessimistic negotiation.
The downturn continued on Friday, the Asian markets having closed sharply lower and European equities fell at the start of the session.
The widening scope of the health crisis threatens to overwhelm global supply chains, particularly in China, the world’s second largest economy after the United States. In addition, the epidemic could overwhelm consumer demand because people limit travel or stay at home even without government orders to do so.
Scott Clemons, chief investment strategist for private banking at Brown Brothers Harriman, said the potential of the epidemic to change the habits of American consumers was at the heart of the sale.
“To the extent that consumers change their behavior – so they stop going out to eat, they don’t take vacations, they cancel the business trip – that consumption, spending, personal consumption represent 68% of GDP” said Mr. Clemons. said.
In the past few days, companies as diverse as United Airlines, Mastercard and Pfizer have said the epidemic is a threat to their 2020 results.
And Goldman Sachs analysts predicted on Thursday that S&P 500 companies will not generate earnings growth this year due to the crisis, due to a “sharp drop in Chinese economic activity,” a disruption of the US business supply chain and a slowing US economy.
President Trump on Wednesday addressed the outbreak, expressing confidence that the risk to the United States was low. But the investors were clearly not convinced.
“When you find yourself in a situation like this, it cascades and it really becomes a problem,” said Steve Sosnick, chief strategist at Interactive Brokers in Greenwich, Connecticut.
As stocks fell on Thursday, other countries struggled to contain the epidemic.
Prime Minister Shinzo Abe has asked all schools in the country to close for a month. Health officials in Germany reacted aggressively after a man with no known connection to someone infected with the coronavirus tested positive, closed schools and urged others who may have been in contact with him to stay at home for two weeks.
In Italy, the number of cases of coronavirus rose to 650 and in France, it more than doubled to reach 38. “We have before us a crisis, an approaching epidemic,” said French President Emmanuel Macron.
In Europe, Denmark, Estonia, Norway and Romania have all reported infections for the first time, joining Austria, Croatia, Germany, Greece, North Macedonia, Spain, Sweden and Great Britain. And worries have increased about the severity of the epidemic in Iran, the source of infections in many other countries. The government said Thursday that 245 people have been infected – including a member of President Hassan Rouhani’s cabinet and six other officials – and 26 were dead.
The epidemic also hit foreign markets hard, where the crisis continued on Friday. The Shanghai and Japan indices closed down 3.7%, and the European markets opened strongly, with the DAX in Germany falling 3.4%. Futures contracts indicated a fall when Wall Street began trading.
The S&P 500 is on track for the worst week in the market since the 2008 financial crisis, and other economic indicators are flashing.
Oil prices have plummeted as people cut back on travel and investors worry about lower industrial and consumer demand. Meanwhile, the money has invested in investments like gold and government bonds, which are generally considered to be safer.
The bond markets – which are much larger than the stock markets and particularly sensitive to growth and inflation prospects – were pessimistic about the economy even before the outbreak. This pessimism only increased this week, as corporate debt prices, even of the safest borrowers, fell and investors rushed into public debt.
Demand for US Treasuries pushed up prices and depressed yields: the yield on the 10-year Treasury bill, a closely watched barometer of investor prospects, fell to a record low of 1.29%.
But the performance of stocks has been particularly astonishing. Randy Watts, chief investment strategist at William O’Neil, a stock research and advisory firm, said the liquidation could worsen as investors may be wary of holding stocks for a weekend, which could bring more frightening news.
“I think it’s bad, especially before a Friday,” he said.
Consumers in the United States have been positive over the past year, although the trade war has caused a widespread collapse in business and manufacturing investment. Part of the reason is that the Federal Reserve has kept interest rates low, prompting consumers to spend more.
But it won’t necessarily work if the factories are closed and consumers are not prepared to risk going out.
“Lowering interest rates is no cure for coronavirus,” said Clemons, a private banking strategist.
Already, the consensus estimate of domestic growth in the first quarter has slipped to 1.5%, according to data from FactSet Thursday, against 1.7% at the end of 2019.
“It takes him out of the” people who feel bad because their 401 (k) are going down, “” said Clemons, “and into the realm of economic reality.”
The reports were provided by Jason Horowitz, Roni Caryn Rabin, Sheri Fink, Farnaz Fassihi and Carlos Tejada.