Stocks Plunge, Havens Jump on Mounting Coronavirus Fears

U.S. equities tumbled alongside stocks in Europe and Asia as authorities struggled to keep the coronavirus from spreading more widely outside China. Havens including Treasuries and gold jumped.

In a dramatic day across markets, these were some of the standout moves:

• The three main U.S. stock benchmarks all opened more than 3% lower, with the S&P 500 Index registering its biggest drop since August. The Dow Jones industrial average erased its gains for the year.
• The Stoxx Europe 600 Index slid as much as 4.2% on twice its average volume, heading for the largest drop since 2016, as investors fled travel and luxury-goods shares. A gauge of credit risk on the region’s high-yield companies jumped.
• The yield on 10-year Treasuries sank to its lowest since 2016.
• South Korea’s benchmark dropped 3.9%, leading declines across Asia, though Japan’s markets were shut for a holiday.
• Spot gold approached $1,700, while Brent crude oil tumbled almost 4%.

The risk-off mood hardened as the epidemic spread to more than 30 countries, with South Korea reporting a jump in infections and Italy locking down an area of 50,000 people near Milan. Finance chiefs and central bankers from the largest economies warned this weekend that they saw the virus bringing downside risks to global growth.

Governments and companies are curbing travel and trade in an attempt to contain a novel pathogen that can be transmitted by people without symptoms. Today’s market moves follow on last week’s surge into havens after fresh warnings by companies over the potential impact of the virus on business and global supply chains. Adding to the anxiety Monday was China announcing an easing of the quarantine of Wuhan, only to retract the statement hours later.

“Markets hate uncertainty and the coronavirus represents the most uncertain macro risk markets have faced in years,” said Alec Young, managing director of global markets research at FTSE Russell. “Investors are also acutely aware that many misjudged the economic severity of the virus early on, making them more open to entertaining worst-case scenarios now.”

Elsewhere, Italian bonds dropped on concern that the spread of the coronavirus may push the economy into a recession. The Australian dollar chalked up a fresh 11-year low and the offshore yuan held most of last week’s decline.

— Check out Coronavirus Lowering Global Growth Expectations, Hurting Markets  on ThinkAdvisor.

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