Traders work on the floor at the New York Stock Exchange in New York, the US, February 25 2020. Picture: REUTERS/BRENDAN McDERMID
Traders work on the floor at the New York Stock Exchange in New York, the US, February 25 2020. Picture: REUTERS/BRENDAN McDERMID

New York — US stocks plunged to an 11-week low and bond yields fell to records on rising concern the coronavirus will upend global supply chains critical to economic growth.

The S&P 500’s four-day rout topped 7%, with losses accelerating on Tuesday after the US Centers for Disease Control and Prevention (CDC) warned Americans to prepare for a coronavirus outbreak at home.

The CDC said Americans should prepare for significant disruptions of daily life if the coronavirus outbreak that began in China begins to spread in the US, describing emergency plans that mimic the drastic measures taken by other countries. That could include school closings, cancellations of sporting events, concerts and business meetings.

The US is preparing as if the virus will become a pandemic, with spread in the US, said Nancy Messonnier, the director of the CDC’s National Center for Immunization and Respiratory Diseases.  “It is not a matter of if, but a question of when, this will exactly happen.”  

That follows a rapid increase in cases from Italy to Iran, South Korea and Japan, with a growing list of companies warning that profits will suffer as economies around the world suffer.

The S&P, Dow Jones Industrial Average and Nasdaq Composite indexes have all set record highs in February.

The 10-year US Treasury yield fell to a record low of 1.3055% as investors sought shelter from the virus’s impact on the outlook for growth. All 11 sectors in the S&P 500 fell with energy, material and financial shares leading the declines. Volatility spiked, sending the Cboe’s measure of equity gyrations surging past 30 for the first time since 2018.

Pressure on the rand continued ahead of finance minister Tito Mboweni's budget statement and amid fears that the coronavirus will become a global pandemic. Business Day TV asked Marc Viakovsky from RMB for further analysis.

“It’s the realisation that the market was not going to bounce like it usually does after a severe one-day decline,” said Matt Maley, an equity strategist at Miller Tabak. “Once that become obvious, the short-term traders started selling and the long-term investors pulled in their horns.”

US central bankers are closely monitoring the spreading coronavirus, but it is “still too soon” to say whether it will result a material change to the outlook, Federal Reserve vice-chair Richard Clarida said.

Elsewhere, European stocks closed in the red, while bonds from the region were mixed. Crude oil slumped again after Monday’s slide of nearly 4%.

Japanese shares tumbled more than 3% as traders returned after a holiday. Stocks fell in China and Australia and pushed higher in South Korea and Hong Kong. The yen strengthened against the dollar for a third day.

Erratic market moves suggest investors remain on edge over the economic impact of the virus. The World Health Organisation has held off from declaring a global pandemic even as cases surged in South Korea, Italy and Japan.

“The markets are pricing in the what ifs of the coronavirus, not necessarily exactly what is,” said Brent Schutte, chief investment strategist at Northwestern Mutual Wealth Management.

Analysts at Oxford Economics  said the epidemic could wipe more than $1-trillion from global domestic product, while the International Monetary Fund lowered its growth forecasts for the world economy.

World Bank President David Malpass said  global economic growth in the first half of 2020 is likely to fall short of the 2.5% pace that the lender has forecast for the full year.

The coronavirus is topic No 1 at the bank, Malpass said at the National Association for Business Economics conference in Washington on Tuesday. 

“We are looking at ways to respond or to make available resources for developing countries,” he said. “We’re also very closely co-ordinating with the World Health Organisation, which is on the front line of the virus, and we have a range of tools that the bank can use as the pandemic spreads.”

With assistance from Nancy Moran.

Bloomberg

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