Roller-coaster week ends with bond yields, stocks sinking

NEW YORK (AP) — A dizzying, brutal week of trading dropped one last round of harrowing swings on investors on Friday.

After skidding sharply through the day as fear pounded markets, steep drops for stocks and bond yields suddenly eased up in the last hour. By the end of trading, the S&P 500 had more than halved its loss for the day to 1.7 per cent and even locked in a gain for the week.

It was the latest lurch in a wild ride that sent stocks flipping between huge gains and losses — mostly losses the last two weeks. Investors are trying to guess how much economic damage the coronavirus will ultimately inflict, and they’re shifting by the minute as the number of new infections piles up on one hand and central banks and governments offer stimulus on

the other. All the uncertainty left markets churning.

“It’s anyone’s guess at this point why it rallied into the close,” Chief Investment Officer for Wells Fargo Private Bank Adam Taback said of the last hour of Friday’s trading.

Earlier in the day, the S&P 500 had been down four per cent. Even more alarming was another breathtaking drop in Treasury yields to record lows.

The 10-year Treasury yield falls when investors are worried about a weaker economy and inflation, and it sank below 0.70 per cent at one point. Earlier this week, it had never in history been below one per cent. It was at 1.90 per cent at the start of the year, before the virus fears took hold.

A trader studies his screens as he prepares for the day’s activities on the floor of the New York Stock Exchange. PHOTO: AP

Even a better-than-expected report on United States (US) jobs was not enough to pull markets from the undertow. It was usually the most anticipated piece of economic data each month, but investors looked past February’s solid hiring numbers because they came from before the new coronavirus was spreading quickly across the country.

“The bond market says the monster under the bed is much bigger and scarier than anyone expects right now,” said senior market strategist at LPL Financial Ryan Detrick.

At the heart of the drops is the fear of the unknown. The virus usually causes only mild to moderate symptoms. But because it is new, experts are not sure how far it will spread and how much damage it will ultimately do, both to health and to the economy.

The number of infections has topped 100,000 worldwide and businesses are reporting hits to their earnings. Danger for companies is coming from two sides. On the supply side, for example, Apple said slowdowns in manufacturing iPhones in China will hurt its sales totals. On the demand side, an airline industry group says the outbreak could lose as much as USD113 billion in revenue as people cancel trips.

Friday’s drop for the S&P 500 was the latest swing in a remarkably turbulent week. It started off with a 4.6 per cent jump on Monday, then fell 2.8 per cent, rose 4.2 per cent and fell 3.4 per cent.

“At this point no one can really explain why the markets behave the way they do, and what may be next,” said a senior analyst at Swissquote Bank. Ipek Ozkardeskaya. “The only thing we can say is this high volatility is bad.”

It was only two weeks ago that the S&P 500 set a record high, on February 19. It lost 12.2 per cent since then.

The bond market sounded the alarm on the effects of the virus long before the stock market, and yields fell further on Friday.

The Fed surprised the market earlier this week by cutting interest rates half a percentage point. Investors expect other central banks around the world to follow suit in hopes of supporting markets.

President of the Boston Federal Reserve Bank Eric Rosengren said on Friday the Fed could start using new tools to combat a downturn, such as buying a broader range of financial assets.

At the same time, doubts are high about how much effect lower rates can have.

Cheaper loans may encourage people and business to make big purchases, but they can’t get workers back into factories if they’re out on quarantine.

A boost for stocks came earlier this week after Congress agreed on an USD8.3 billion bill to combat the coronavirus, which US President Donald Trump signed on Friday. But investors said a slowdown in the economy seems inevitable, and many analysts expect the market’s sharp swings to continue as long as the number of new cases accelerates.

“As the market tries to find its bottom, it’s going to go up and down, up and down, until it has a reason to steadily change in one direction or the other,” said Taback of Wells Fargo Private Bank.

MARKET ROUNDUP:

The S&P 500 fell 51.57, or 1.7 per cent, to 2,972.37. It rose 0.6 per cent for the week.

The Dow Jones Industrial Average lost 256.50, or one per cent, to 25,864.78. The Nasdaq fell 162.98, or 1.9 per cent, to 8,575.62.

The yield on the 10-year Treasury dropped to 0.77 per cent from 0.92 per cent late Thursday. It rallied from as low as 0.66 per cent earlier in the day, according to Tradweb.

Benchmark US crude tumbled USD4.62, or 10.1 per cent, to settle at USD41.28 per barrel. It was the worst day for oil in more than five years. Brent crude, the international standard, dropped USD4.72, or 9.4 per cent, to USD45.27.

In Europe, the French CAC 40 dropped 4.1 per cent, and the German DAX lost 3.4 per cent. The FTSE 100 in London fell 3.6 per cent.

Japan’s Nikkei 225 fell 2.7 per cent, South Korea’s Kospi lost 2.2 per cent and stocks in Shanghai dropped 1.2 per cent.

Gold rose USD4.40 to settle at USD1,672.40 per ounce. Silver fell 13 cents to USD17.26 an ounce, and copper slipped one cent to USD2.56 a pound.

Wholesale gasoline fell 13 cents to USD1.39 a gallon, heating oil fell 10 cents to USD1.39 a gallon and natural gas lost six cents to USD1.71 per 1,000 cubic feet.