The alarming drop in the 10-year Treasury yield contributed to the sale, which at current prices means that bonds pay less than 1% interest. The 10-year note is a crucial global financial measure that can be an indicator of future economic health, as well as a marker of mortgage rates and car loans. Investors are fleeing stocks for the security of 10-year notes, which are seen as a bulwark against financial chaos.
“The low 10-year Treasury yield is a sign that investors are very concerned about the future growth of the economy,” said Eric Jacobson, senior fixed income research analyst at Morningstar. “That’s what is going on. When people are worried about everything else, they run to Treasurys because they know they are going to be reimbursed.”
Despite all the turbulence, which included several fluctuations of several thousand points in the Dow Jones, the stock market ended the week upward from the start. But it is still dropping sharply where it peaked in mid-February, and the spread of the coronavirus in the United States and elsewhere has raised concerns among many investors that economic problems will only get worse.
The trading day was more difficult in Europe, the benchmark Stoxx 600 and the German DAX having fallen by 3%, the French CAC 40 by 4% and the British FTSE 100 by 3.6%.
Asian markets were less battered than Europe, in part because of reports that Chinese industries could stabilize. The Hong Kong Hang Seng index fell 1% and the technology-rich Shanghai index fell 1%. The Japanese Nikkei lost around 3% on Friday morning.
“As the rest of the world panics, China is getting back to work,” Mark Greeven, professor of innovation and strategy at IMD Business School in Lausanne, Switzerland, said in an email.
On Friday, the 11 Standard & Poor’s stock markets lost value, as energy suffered a 10% drop in the price of a barrel of oil.
Oil prices fell sharply on Friday as talks between OPEC and Russia over production cuts collapsed without a deal. Brent crude oil fell 8% to around $ 46 a barrel late in the morning, Eastern time.
Saudi Arabia has been pushing for a reduction of 1.5 million barrels per day to support the price as global demand for oil weakens in the face of the Covid-19 epidemic. But Russia, which has concluded a cooperation agreement with the Organization of the Petroleum Exporting Countries since 2016, called OPEC +, believes that it can resist lower prices. Cheaper oil would allow Russia to maintain its market share while putting pressure on American shale producers, who have increased production dramatically in the past four years but are facing higher expenses.
But apparent failure to reach agreement at OPEC meeting in Vienna on Friday threatens to sever Russia’s ties to the deal, although Russian news agency TASS reported that Russia has asked more time and agrees to further discussions.
As Russian Energy Minister Alexander Novak left the meeting on Friday, he told reporters: “We have just signed a joint document that we will continue to work and interact with,” according to Ria Novosti news agency. .
The outage “is an unexpected development, well below our worst case scenario and, in our opinion, will create one of the most serious oil price crises in history,” wrote Bjoernar Tonhaugen, research manager at oil market for Rystad Energy, a Norwegian company. in a note. “The decision risks dropping oil prices.”
“It is an existential threat to many oil companies if the price of a barrel does not stabilize and rise,” said John Kilduff of Again Capital. “Many companies are unprofitable when oil prices are below $ 50 a barrel. They will fall like flies in the second half if prices do not go up. “
Low oil prices are hurting the petroleum industry, but consumers are benefiting from it due to lower gasoline prices and lower heating costs. Because oil is a basic ingredient in many products – from drugs to plastic – low prices can help curb inflation.
The solid employment report did not shake the market much on Friday. The US economy created 273,000 jobs in February, posting impressive growth and strength even amid concerns about the economic fallout from the coronavirus.
The unemployment rate fell slightly to 3.5% from 3.6%. The unemployment rate remains close to a 50-year low. The exceptional growth was driven by gains in health care, restaurants, government and construction hiring.
By Thursday’s close, US stocks had lost a total of $ 3.67 trillion in value since the market high on February 19, according to Howard Silverblatt of S&P Dow Jones Indices.
“The simplest route during this time of uncertainty is to sell first and ask questions later,” said Sarat Sethi of Douglas C. Lane & Associates. “People have to be prepared for this to continue for a little while. The reaction to this virus will slow economic activity for at least the next two quarters. But this will not affect the economy in the long term. “
On Thursday, the top three US stock indexes swung into a correction for the second time this week. A correction is a 10% drop from recent highs.
The Dow Jones closed nearly 970 points lower on Thursday as investors fled their stocks and headed for US debt security. The Dow Jones ended Thursday down 3.5% on the day to end at 26,121. The S&P 500 fell to 3,023, down 3.4%. The Nasdaq Composite, charged with technology, slipped to 8,738.60, erasing 3.1% of its value.
The 11 S&P sectors all finished negative, the finance, industry and energy sectors being the weakest. Dow’s 30 blue chip stocks were in the red. United Technologies, aerospace giant Boeing, JP Morgan Chase and Goldman Sachs were among the biggest speed bumps in the Dow. The profits of financial companies are falling in an environment of low interest rates.
The markets had rocked all week. Thursday’s market trauma followed an exuberant Wednesday when investors – spurred on by Joe Biden’s Super Tuesday victories – propelled the Dow nearly 1,200 points up, more than 4.5%, while the S&P 500 and the Nasdaq climbed 4.2% and 3.85%, respectively. The rebound came after the International Monetary Fund committed $ 50 billion to fight coronavirus in low-income and emerging countries.
The lack of clarity on the direction of the virus has slowed investor attempts to restore balance to the stock and bond markets.
“Despite all the talk about the virus, the truth is that no one knows which way it will take, how long it will last and how serious it will be,” said Nancy Davis, chief investment officer for Greenwich, Connecticut. Quadratic Capital in a note this week. “Uncertainty will therefore continue to fuel higher volatility.”
The drop in the yield on the 10-year Treasury bill is not that bad. Many lenders mark their interest rates at 10 years, which can have a beneficial effect on the economy, lower mortgage rates, stimulate borrowing for businesses and home equity loans as well as spending in general. Mortgage rates also hit record lows on Thursday.
Market chaos failed to subside even after President Trump on Friday signed an $ 8.3 billion emergency spending bill to fight the coronavirus that the Senate passed on Wednesday.
The money includes research funds to find a vaccine against the virus and assistance to local communities to fight the epidemic. It will also help finance small businesses to help them overcome the crisis.
The global death toll from coronavirus has exceeded 3,200 and more than 97,000 people have been infected. The epidemic’s grip on the United States is also tightening, with California declaring a state of emergency after its first coronavirus death brought the death toll to 11.
The epidemic has disrupted global supply chains and threatens to dampen economic growth since the first cases emerged in Wuhan, China in late December, causing markets around the world to bubble up. Trump has staked much of his argument for re-election on the strength of the economy and Wall Street, which had hit records just three weeks ago.
Global travel plummets as event cancellations and travel restrictions mount, severely impacting tourism, aviation, cruises and hospitality. Airline stocks rebounded on Friday after White House economic adviser Larry Kudlow said the administration is considering a stimulus to protect the industry from the effects of the coronavirus on travel.
Delta Air Lines, American and Southwest have all boosted the news.
Will Englund contributed.