The last time markets suffered a week this bad in 2008, esoteric terms and acronyms, like credit default swaps, CDOs, and CLOs, were littered thorough the financial press, but this week has only one culprit: the coronavirus.
However, today brought the slightest sign of relief as a strong rally in the final minutes of trading eased what had been steep losses and even let the NASDAQ creep into the green. Recent volatility has led to increased expectations that the Fed will take measures to support the market and that the Fed may work in conjunction with other global central banks.
The bond market has responded with record low rates on the longer end of the curve. Economic data offered upbeat reads on personal income, consumer sentiment and regional manufacturing. Global equity indexes suffered heavy losses on the day.
The Dow Jones Industrial Average shed 357 points (1.4%) to 25,409.
The S&P 500 fell 25 points (0.8%) to 2,954.
The tech-focused NASDAQ added 1 point to 8,567.
In heavy volume, 2.5 billion shares were traded on the NYSE and 5.3 billion shares changed hands on the NASDAQ.
WTI oil was down $2.33 to $44.76 per barrel and wholesale gasoline shed $0.02 to $1.40 per gallon.
The Bloomberg gold spot price was down $75.80 to $1,566.70 per ounce.
The Dollar Index—a comparison of the U.S. dollar to six major world currencies—fell 0.4% to 98.11.
For the week, the Dow was down 12.4%, the S&P shed 11.5% and the NASDAQ dropped 10.5%.
Personal income and spending report mixed, consumer sentiment revised higher
Personal income rose 0.6% month-over-month in January, versus the Bloomberg forecast of a 0.4% rise, and compared to December’s downward-revised 0.1% gain. Personal spending gained 0.2%, below forecasts of a 0.3% increase and the prior month’s upwardly-revised 0.4% advance. The January savings rate as a percentage of disposable income was 7.9%.
Treasuries continued to surge, with the yield on the 2-year note plunging 13 basis points to 0.93%, the yield on the 10-year note dropping 10 bps to 1.17%, and the 30-year bond sliding 6 bps to 1.69%. Bond yields remain in a sharp downdraft as the coronavirus concerns foster intensified flight to safety and are suggesting the markets are ramping up expectations that the Fed will be forced to react with monetary policy action.
The February final University of Michigan Consumer Sentiment Index was revised to 101.0, versus expectations for a slight downward adjustment to 100.7 from the preliminary 100.9 reading and above January’s 99.8. The index improved m/m as the current conditions and expectations components of the survey both increased. The 1-year inflation forecast dipped to 2.4% from January’s 2.5% rate, and the 5-10 year inflation forecast declined to 2.3% from the prior month’s 2.5% pace.
Global markets end the week with steep losses
Global equities were broadly lower again amid the continued global stock market correction that has come from the rapid spreading of the coronavirus outside the epicenter of China, with cases spiking in Italy, South Korea and Iran recently. The first case of the virus in the U.S. from an unknown origin has further exacerbated concerns, as past cases had a fairly direct link to China. The outbreak has weighed on economic and earnings forecasts and has seen China react with a flood of stimulus measures.
There are some expectations for potential coordination among global central banks, including the Fed, to stabilize the markets.
Global economic data has been totally overshadowed by the virus and has not had enough time to reflect the impact of the outbreak, but for the time being remains reasonably strong, highlighted today by an upbeat read on German unemployment and a slightly hotter-than-expected report on German consumer price inflation. Japan offered a stronger-than-expected read on the nation’s retail sales for last month.
The euro and British pound lost ground versus the U.S. dollar, while the safe-haven Japanese yen posted strong gains. Global bond yields were lower; however Italy and Greece saw another day of higher rates.
The U.K. FTSE 100 Index lost 3.2%, Germany’s DAX Index fell 3.9%, France’s CAC-40 Index dropped 3.4%, Spain’s IBEX 35 Index declined 2.9%, Switzerland’s Swiss Market Index was down 3.7%, and Italy’s FTSE MIB Index decreased 3.6%.
Japan’s Nikkei 225 Index tumbled 3.7%. China’s Shanghai Composite Index dropped 3.7% and the Hong Kong Hang Seng Index fell 2.4%. Australia’s S&P/ASX 200 Index and South Korea’s Kospi Index both traded 3.3% lower, while India’s S&P BSE Sensex 30 Index plunged 3.6%
Stocks register historic weekly drop
U.S. stocks, in concert with the global markets, plunged with the S&P 500 posting the worst week since the financial crisis and moving into correction territory—from an all-time high—in the shortest amount of time in history. Uncertainty ran wild regarding the supply and demand impact of China’s aggressive containment efforts in the epicenter that included shutting down entire regions of the country and some key manufacturing hubs. The lack of clarity regarding the impact was exacerbated by spikes in new cases in South Korea and Italy, as well as the first case in the U.S. of unknown origin.
All major market sectors plunged into correction territory, potentially amplified by the growing use of systematic trading strategies, and amid frantic reassessments of pre-outbreak earnings and economic modeling by economists and analysts who grappled with the heightened uncertainty of the economic impact and the recent flood of companies issuing warnings regarding the outbreak.
The week saw expectations jump regarding a potential monetary policy reaction from the Fed and potentially some sort of global central bank coordination. Treasury yields tumbled, posting a string of record lows, and crude oil prices registered the worst weekly drop in 11 years that took WTI crude oil below $45 per barrel for first time in more than a year.
Economic data was shoved to the back burner due to most figures being pre-outbreak (January) reads, such as a jump in new home sales to the highest level since mid-2007 and a much stronger-than-expected rebound in core durable goods orders.
As expected, even some relatively upbeat February reads on regional manufacturing and Friday’s upward revision to consumer sentiment for this month made little-to-no impact.