Stocks Drop With Investors Urging Broader Response: Markets Wrap

(Bloomberg) --

The rout in U.S. stocks accelerated as investors signaled the Federal Reserve’s extraordinary bond-buying measures and Donald Trump’s economic proposals won’t be enough to counter the economic impact from the coronavirus.

The S&P 500 Index tumbled more than 8% as the Dow Jones Industrial Average headed to its biggest loss since Black Monday of October 1987. Ten-year Treasury yields declined as policy makers’ pledge of $1.5 trillion in liquidity recalled the quantitative easing used during the financial crisis. Oil and precious metals slumped, with palladium falling into a bear market.

The stock rout was worldwide, with Europe’s benchmark index down 11% in a record drop. Brazil’s Ibovespa tumbled as much as 20% at one point, extending this year’s loss to almost 50% in dollar terms, and Canada’s main gauge was off more than 12%.

Investors are trying to guess at the effectiveness of policy makers’ measures to curb the spread of the coronavirus and limit its economic damage after Trump’s travel ban and tepid fiscal measures failed to impress most observers. Spirits were further damped by new bans on public gatherings in the U.S. and professional sports leagues’ move to suspend operations.

“We need to see what is effectively a ‘declaration of war’ against the virus and full support to offset the economic damage that war will cost,” said Peter Tchir, head of macro strategy at Academy Securities LLC. “Whatever has gone on this week, it’s not a liquidity crunch.”

On another bruising day across markets:

• The S&P 500, Nasdaq Composite and Nasdaq 100 indexes sank deeper into a bear market, with losses from February closing records extending well past 20%.
• The slump triggered the second 15-minute trading halt this week shortly after the U.S. open.
• The MSCI All-Country World Index extended losses to enter bear-market territory.
• The cost of insuring debt issued by Europe’s investment grade companies surged to the highest since 2013.
• Japanese stocks closed more than 4% lower even after another liquidity pledge from the country’s central bank. Australian shares sunk deeper into a bear market despite a stimulus plan there.
• Oil extended losses toward 5%. Bitcoin slumped. Gold fell below $1,600 an ounce.

More bad news about the impact of the coronavirus further sapped investor spirits. The leading U.S. infectious-disease official said the testing system in the country is failing. The European Union warned of sickness threatens to exceed health-care capacity across the region “in a few weeks or even days.” The National Hockey League followed the National Basketball Association’s lead and suspended its season.

“Market moves suggest monetary stimulus has reached its limits,” said Lucas Bouwhuis, a portfolio manager at Achmea Investment. “Most of the stimulus needs to come from the fiscal side and we are just not seeing enough of that yet.”

Meanwhile, signs that companies in the hardest-hit industries were drawing down credit lines to battle the effects of the virus on their businesses added to anxiety.

“The risks have definitely risen,” said Chris Gaffney, president of world markets at TIAA. “The question is how long will this last and I don’t think anybody can predict that at this point.”

These are the main moves in markets:

Stocks

• The S&P 500 Index declined 8% as of 2:44 p.m. New York time.
• The Stoxx Europe 600 Index fell 11%.
• The MSCI Asia Pacific Index dipped 5.3%.
• The MSCI Emerging Market Index sank 6.5%.

Currencies

• The Bloomberg Dollar Spot Index gained 1%.
• The euro weakened 0.7% $1.1196.
• The Japanese yen fell 0.6% to 105.18 per dollar.

Bonds

• The yield on 10-year Treasuries sank eight basis points to 0.79%.
• Germany’s 10-year yield fell one basis point to -0.75%.
• Britain’s 10-year yield declined three basis points to 0.26%.

Commodities

• West Texas Intermediate crude declined 4.9% to $31.37 a barrel.
• Gold weakened 3.4% to $1,579.23 an ounce.