By Anna Hirtenstein and Karen Langley
Investors around the globe stepped up their retreat from stocks
and many commodities, reflecting intensifying fears that a viral
outbreak in China will deliver a fresh setback to the outlook for
world economic growth.
The Dow Jones Industrial Average posted its fifth consecutive
daily decline, dropping 453.93 points, or 1.6%. The S&P 500
also declined 1.6%, its first drop of more than 1% since
October.
Meanwhile, the yield on the benchmark 10-year Treasury note fell
to 1.605%, its lowest level since October, a signal investors are
eschewing risk as they reconsider an outlook that just recently had
been brightening. The Cboe Volatility Index, which measures
expected moves in the S&P 500 index, also climbed to its
highest level since October.
"It's probably too early to determine the impact to global
growth from the outbreak of this virus," said Allen Bond, portfolio
manager at Jensen Investment Management. "The impact on global
growth is probably the key uncertainty."
Concern about the coronavirus intensified as the tally of
infections jumped over the weekend. The virus has infected more
than 2,700 people and killed at least 82, mostly in China's Hubei
province. It has spread to other countries including the U.S.,
Japan and South Korea, and public-health officials have warned that
it is growing more contagious.
Shares of tourism-related companies and those with ties to China
were among the hardest hit, after the country imposed travel
restrictions in response to the outbreak.
Wynn Resorts, which has a large presence in gambling hot spot
Macau, declined 8.1%. American Airlines Group, one of the world's
largest carriers, dropped 5.5%, and Apple, which counts China among
its biggest markets, fell 2.9%.
"It reminds investors that this market can turn on a dime,
should it start to question what was causing it to go higher," said
Sam Stovall, chief investment strategist at CFRA, of the
volatility.
The sharp selloff jolted an equity market that had been
unusually calm: The S&P 500 hadn't logged a daily rise or fall
of more than 1% since October. It also hadn't suffered two
consecutive daily declines since Dec. 10.
The broad stock-market index fell 51.84 points to 3243.63,
weighed down by losses in all 11 sectors. The energy, technology
and materials sectors, all of which are sensitive to China and any
growth-related fears, dropped more than 2%.
The 30-stock Dow Jones Industrial Average, meanwhile, gave up
its gains for the year, falling to 28535.80, less than 0.1% below
the level at which it ended 2019.
And the technology-heavy Nasdaq Composite dropped 175.60 points,
or 1.9% -- its largest one-day decline since August -- to
9139.31.
"Clearly, the news today is just hit the sell button first and
worry about the details later," said Jack Ablin, chief investment
officer at Cresset Capital.
U.S. stocks have steadily risen since mid-October when the Trump
administration indicated it was nearing a phase-one trade deal with
Beijing. Meanwhile, improving economic data -- and three
interest-rate cuts by the Federal Reserve -- eased fears about a
manufacturing slowdown bleeding into the broader economy.
Shares have been trading at relatively high multiples of
earnings, which has made them more vulnerable to pullbacks in
response to negative headlines, said Yousef Abbasi, global market
strategist at INTL FCStone.
"Investors were considering and really looking forward to
improved global growth," he said. "Uncertainty like this causes
people to step back and reassess the amount of risk they're
taking."
Several investment advisers said it is too soon to make
portfolio changes based upon the outbreak. Kristina Hooper, chief
global market strategist at Invesco, cautioned against panicking.
"Investors would be well-served to stay the course and remain
well-diversified," she said.
As investors fled stocks, they sought safety in gold, which rose
0.4%, settling at the highest value since April 2013.
Making the matter more difficult to assess for investors is the
fluid nature of the outbreak and the impenetrability of Chinese
politics. The mayor of Wuhan said rules imposed by Beijing limit
what he could disclose about the threat posed by the pathogen,
suggesting the government was partially responsible for a lack of
transparency about the outbreak.
In addition to developments around the virus, investors are
looking ahead to a big week of corporate earnings reports. Among
the companies on tap for Tuesday are Apple, Pfizer and Lockheed
Martin.
With about 17% of S&P 500 companies having reported for the
fourth quarter, 70% have topped analysts' earnings expectations,
according to FactSet. Still, analysts anticipate earnings for the
S&P 500 as a whole to register a drop of 1.9% from a year
earlier, before climbing again in the first quarter of 2020.
Investors also will be keeping an eye on the Federal Reserve's
meeting Wednesday, though the central bank is expected to hold its
benchmark rate steady.
Overseas, Stoxx Europe 600 retreated 2.3%. Markets in China,
Hong Kong and South Korea were closed Monday for a public holiday.
Japan's Nikkei 225 index closed down 2%.
In the U.S., hotel, cruise and airline stocks were among the
biggest decliners on the day. The U.S. Centers for Disease Control
and Prevention issued a warning to avoid nonessential travel to the
Hubei province of China.
Las Vegas Sands dropped $4.58, or 6.8%, to $63.27 and MGM
Resorts International lost $1.22, or 3.9%, to $30.35.
United Airlines Holdings shares fell $4.27, or 5.2%, to $77.63
and Delta Air Lines shares declined $1.98, or 3.4%, to $56.83.
With renewed questions about growth in China, the world's
largest consumer of industrial commodities, shares of mining
company Freeport-McMoRan shares fell 94 cents, or 7.9%, to
$10.90.
Oil prices slumped, extending their losing streak to five
sessions, as the virus outbreak threatens to damp economic growth
in China, the world's biggest energy consumer. Brent crude, the
global benchmark, declined 2.3% to settle at $59.32 a barrel, the
lowest mark since Oct. 21.
Write to Anna Hirtenstein at anna.hirtenstein@wsj.com and Karen
Langley at karen.langley@wsj.com
(END) Dow Jones Newswires
January 27, 2020 18:04 ET (23:04 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.