Another market slump delivers worst week for Wall Street since 2008

Andrew Cummings
April 6, 2020

US stocks turned lower in afternoon trading on Wednesday in a fresh wave of selling sparked by fears of the coronavirus spreading in the United States.

The Dow Jones Industrial Average fell 588.05 points, or 2.5 per cent, to 25,038, and the S&P 500 lost 2.1 per cent. On Thursday, the Dow plunged 1,190 points, the biggest one-day point drop in history.

Doug Ramsey, chief investment officer of the Leuthold Group, said he was also unnerved by recent signs of over-confidence in some corners of the market by retail investors.

"Profit warnings linked to the health crisis, as companies are either hit by slowing consumer demand in China or impact on their supply chain, are starting to trickle out with the impact on iPhone sales revealed by Apple earlier this week the most high profile of these".


In late 2018, when investors were anxious that the Federal Reserve was raising interest rates too quickly and could force the economy into a recession. Goldman said the Fed's current lack of action amounts to a tightening of rates compared with other nations and their actions to offset the impact of the coronavirus. Some market participants - 34% - even expect a half percentage point cut.

Researchers work in a lab that is developing testing for the COVID-19 coronavirus at Hackensack Meridian Health Center for Discovery and Innovation on February 28, 2020 in Nutley, New Jersey.

Major indexes clawed back much of their intraday losses in the last 15 minutes.

On the macro front, economic activity in the United States manufacturing sector in February will expand at a softer pace than in the previous month, with IHS Markit's Manufacturing PMI dropping to 50.8 in its advanced print from 51.9 in January. Its weekly loss of 11.5% was the biggest since an 18.2% drop in the week ending October 10, 2008.


The survey, coming as global stock markets fall on fears the virus will spread overseas, adds to mounting evidence of the vast cost of the disease that emerged in central China in December and its economic impact worldwide. On Friday, China reported 327 new cases - the lowest since January 23 - and 44 deaths.

"I don't think Friday would be a good day to do much because we have been selling off all week and investors are a bit jittery", said Paul Brain, head of fixed income at Newton Investment Management, a BNY Mellon subsidiary. The travel sector, including cruise operators and airlines, also took a hit. Fears about the coronavirus have rapidly mushroomed, with investor anxiety that its spread will dent economic growth around the world strengthening as new cases cropped up.

A big concern investors have is that the stock market rout could have a psychological effect on consumers, making them reluctant to spend money and go to crowded places like stores, restaurants and movie theaters. "This is a market that's being driven completely by fear", said Elaine Stokes, portfolio manager at Loomis Sayles, with market movements following the classic characteristics of a fear trade: Stocks are down. Now, analysts are anxious that the latest stock swoon could cause consumer spending - which makes up some 70 per cent of the economy and has played a huge role in keeping the USA expansion going - to contract again. "There is a lot of uncertainty". Stock trading volumes jumped to a year-long high on Thursday while listed options trading soared to the highest level on record. Before the virus worries exploded, investors had been pushing stocks higher on expectations that strong profit growth was set to resume for companies after declining for most of 2019.


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