S&P 500 Erases 2020 Gain With Virus Fear Mounting: Markets Wrap

(Bloomberg) -- Stocks slumped and bonds rallied on heightened concern that the spread of the coronavirus will slam global economic growth.

The S&P 500 Index erased its 2020 gain and the Dow Jones Industrial Average dropped more than 600 points as traders remained on edge over the impact of the disease that’s now infected about 10,000 people around the world. A gauge of U.S. equity volatility spiked to an almost four-month high. Caterpillar Inc. plunged as its outlook trailed estimates, adding to worries about global business spending. Amazon.com Inc. soared after a blowout quarter. Treasury 30-year yields breached 2% for the first time since October.

Virus Ripples Across Markets With 99% Routs, Record Losing Runs

Investors in China will get their first chance to trade since Jan. 23 as financial markets reopen on Monday. For equities, the declines are likely to be exacerbated by the amount of leverage. That could create a downward spiral where steep losses become steeper with traders facing margin calls. As an example of how extreme selling can be, the Shanghai stock benchmark fell almost 6% in May, when it resumed trading following a holiday break on negative trade-war news. With all the angst over the viral outbreak this week, the offshore yuan tested the key level of 7.

The end of January was tumultuous across global markets as a barrage of corporate earnings, central-bank decisions and economic data landed in the growing shadow of the epidemic. The outbreak will cut U.S. economic growth by 0.4 percentage point in the first quarter as the number of tourists from China plunges and exports to the Asian nation slow, according to Goldman Sachs Group Inc. Still, a report showed that American consumer sentiment increased in January to an eight-month high, indicating sustained optimism in the face of the coronavirus.

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“The virus outbreak represents this unknown that, frankly, markets aren’t very good at handicapping,” said David Lafferty, chief market strategist at Natixis Investment Managers in Boston. “It’s almost like an open-ended risk.”

American stocks had their worst month since August, with the S&P 500 dropping more than 3% from its all-time high on Jan. 17, led by energy and raw-material companies. While the benchmark gauge and the Dow Average both erased gains for the year, the Nasdaq Composite Index still held on to a 2% advance in 2020. It was the first time since Sept. 2018 that the major equity measures failed to move together on a monthly basis.

Some other corporate highlights:

• U.S. Steel Corp. reported the worst loss in almost three years and expects similar results this quarter.
• Exxon Mobil Corp. and Chevron Corp. posted the weakest results in years amid disappointing numbers in almost all business lines.
• Honeywell International Inc. sales forecast disappointed analysts as an industrial slowdown crimped revenue growth.
• Boeing Co. was cut by Moody’s Investors Service to the lowest tier of investment grade.
• Visa Inc. said the incentives it hands out to banks and retailers will climb faster than revenue and are on track to be at the high end of its targeted range for 2020.
• Colgate-Palmolive Corp. posted strong sales growth last quarter even as it raised prices to consumers.

Elsewhere, oil is off to the worst start to a year since 1991 on concern that the spread of coronavirus will curb demand for transportation fuels. Emerging-market shares fell for a seventh day while Brazil’s real sank to an all-time low. The pound ended a tumultuous month on a high note amid Britain’s exit from the European Union.

These are some of the main moves in markets:

Stocks

• The S&P 500 sank 1.8% as of 4 p.m. New York time, the largest tumble in four months.
• The Stoxx Europe 600 Index decreased 1.1%.
• The MSCI Emerging Market Index fell 1%.

Currencies

• The Bloomberg Dollar Spot Index dipped 0.3%.
• The euro increased 0.6% to $1.1094.
• The Japanese yen appreciated 0.6% to 108.35 per dollar.

Bonds

• The yield on 10-year Treasuries declined eight basis points to 1.51%.
• Germany’s 10-year yield decreased three basis points to -0.43%.
• Britain’s 10-year yield fell two basis points to 0.524%.

Commodities

• The Bloomberg Commodity Index decreased 0.4%.
• West Texas Intermediate crude dipped 1.1% to $51.56 a barrel.
• Gold strengthened 1% to $1,589.26 an ounce.

--With assistance from Cormac Mullen, Todd White, Sam Potter, Constantine Courcoulas, Claire Ballentine, Elizabeth Stanton, Justina Vasquez, Sophie Caronello and Nancy Moran.

To contact the reporters on this story: Rita Nazareth in New York at rnazareth@bloomberg.net;Vildana Hajric in New York at vhajric1@bloomberg.net

To contact the editors responsible for this story: Jeremy Herron at jherron8@bloomberg.net, Rita Nazareth

©2020 Bloomberg L.P.