Dow drops more than 900 points, ending worst week since 2008

AP – Wall Street ended the week the same way it began: in full retreat from the coronavirus.

Stocks fell sharply and the price of oil sank on Friday as federal and state governments moved to shut down bigger and bigger swaths of the nation’s economy in the hope of limiting the spread of the outbreak.

The Dow Jones Industrial Average slid more than 900 points, ending the week with a 17.3 per cent loss. The index has declined in four of the last five weeks.

The latest sell-off wiped out the gains from a day earlier and capped the market’s worst week since the financial crisis of 2008.

Investors are worried that the coronavirus will plunge the United States (US) and other major economies into deep recessions. Steps to contain the spread of the outbreak are causing massive disruptions and layoffs. Optimism that emergency actions by central banks and governments to ease the economic damage has waned as investors wait for the Trump administration to deliver on legislation that will pump billions of dollars into hurting households and industries.

“The coronavirus is shutting the economy down,” said Chief Investment Strategist at Ally Invest, Lindsey Bell. At the same time, oil prices are being pulled lower by increased supplies at a time when demand is declining.

“This is kind of a double-whammy for the economy,” she said.

Traders work on the trading floor. PHOTO: AP

Friday’s selling accelerated after New York Governor Andrew Cuomo ordered that most workers stay home. The declaration came a day after California announced similar measures. The move leaves restaurants, retailers and other businesses dependent on consumer traffic in economic limbo as they were forced to close doors and furlough or lay off workers.

The measures also mean less demand for oil. US crude dropped about 21 per cent and moved below USD20 a barrel for first time since February 2002.

Investors said they need to see the number of new infections stop accelerating for the market’s volatile skid to ease.

“We just don’t know what the next two weeks will bring,” said Global Market Strategist at the Wells Fargo Investment Institute, Paul Christopher. “Are we going to follow the same infection curve as other countries and the number infections will drastically accelerate? That’s when the storm is going to come.”

The Dow fell 913.21 points, or 4.5 per cent, to 19,173.98. The S&P 500, the benchmark for many index funds held in retirement accounts and the measure preferred by professional investors, fell 4.3 per cent after being up 1.8 per cent earlier. The index is down 31.9per cent since reaching a record high a month ago.

Investors sought safety in US government bonds, driving their yields broadly lower. The 10-year Treasury yield, which influences interest rates on mortgages and other consumer loans, slid to 0.88 per cent from 1.12 per cent on Thursday. At least that was normal markets behaviour. Earlier in the week investors were selling stocks and bonds at the same time in a desperate rush to raise cash.

Oil has been plunging recent weeks as investors anticipate a sharp drop in demand for energy as manufacturing, travel and commerce grind nearly to a halt. It’s down from USD45 a barrel earlier this month. A price war between Saudi Arabia and Russia has also pushed oil lower.

European and Asian markets closed broadly higher.

Despite the latest bout of selling, hopes remain that there will be progress in finding virus treatments and that “a boatload of stimulus by both central banks and governments will put the global economy in position for a U-shaped recovery,” said Edward Moya of Oanda in a report.

On Capitol Hill, lawmakers continued to work to finalise a USD1 trillion-plus aid package to prop up households and the US economy that would put money directly into Americans’ pockets. US President Donald Trump has embraced the stimulus, believing it is needed to stabilise the economy and stock markets, which have been pummelled by the crisis.

At the same briefing, Trump announced an effective closure of the US border with Mexico, prohibiting most travel except for trade. That brings it in line with the restriction on the Canadian border earlier this week.

Even with the market’s broad slide, airlines, hotels and cruise line operators climbed as Congress worked on the economic stimulus bill that would include billions to bail out those industries. United Airlines surged 15.1 per cent and MGM Resorts International jumped 18.3 per cent. Carnival rose 20 per cent. Despite the big gains, the stocks are still down sharply for the year.

In just its latest move to backstop the markets, the US Federal Reserve said on Friday it would seek to hold down spiking interest rates in the state and municipal bond market by supporting banks’ purchase of the bonds.

Investors are jumpy due to uncertainty about the size and duration of the impact of the coronavirus outbreak and the spreading wave of business shutdowns meant to help contain it.

Markets are likely in for more turbulence next week as investors get a better look at the economic fallout from businesses closures and layoffs. Goldman Sachs Group analysts project that this week’s US unemployment aid applications increased more than two million, a record.