The Dow Jones collaped by more than 400 points today as a brutal risk cocktail headlined by the coronavirus hammered stock markets worldwide.
The Dow Jones plunged when the opening bell rang on Monday, then tracked sideways for the majority of the session. While the coronavirus outbreak dealt the stock market the fatal blow, investors had plenty of other reasons to remain cautious.
From surprising twists in Trump’s impeachment saga and the Democratic primary to unexpected weakness in the U.S. housing market, Dow bulls must stomach a bitter risk cocktail that could linger long after “coronavirus” fades from the headlines.
Among the three major U.S. stock market indices, the Dow Jones Industrial Average and S&P 500 fell in lock-step while the Nasdaq underperformed.
Shortly before the close, the Dow had collapsed by 420.78 points or 1.45% to slide to 28,568.95.
The S&P 500 declined by 1.48%, while the Nasdaq plunged 1.79% to round out a volatile day for U.S. stocks.
The volatility spike spurred a substantial movement in commodities, and safe-havens rose across the board. The price of gold rallied 0.5% to $1,580, while the Japanese yen gained 0.34% against an already firm U.S. dollar.
Crude oil took a substantial 2.5% knock, while copper fell more than 3% on the day.
Digital asset bitcoin appeared to enjoy the market turmoil, rallying 3.1%, and the offshore Chinese yuan (CNH/USD) slipped 0.8%.
The Wuhan coronavirus continues to dominate the news cycle, and it is quite clear that the fear index remains at elevated levels.
The number of confirmed U.S. cases continues to hover at five, but some lawmakers are advocating for a travel ban from China to reduce the risk of spreading the virus.
This may have prompted a federal decision to officially warn travelers to “reconsider” traveling to China.
Donald Trump is unlikely to support the travel ban, given that he is currently on a charm offensive with Chinese President Xi Jinping.
Trump’s penchant for de-escalation also appears to playing out in the Middle East, as the president has not yet made any response to mortar attacks against the U.S. embassy in Iraq.
Other pain-points for the Dow Jones came from less obvious sources, including the U.S. housing market.
Housing data appear to be suffering from a rare influx of gravity, with new home sales dropping unexpectedly to a five-month low.
While not directly linked to the stock market, housing is an excellent indicator of sentiment in the domestic economy, as well as the health of the all-important consumer.
Dow bulls also had to evaluate some market-hostile developments in domestic politics.
Fueled by an extremely active base and impressive fundraising, Bernie Sanders has fought his way to the top of the Democratic presidential field.
Moderate Joe Biden is once again losing ground, and the left-wing senator from Vermont poses a considerable threat to the U.S. financial establishment.
Komal Sri-Kumar, president and investment strategist at Sri-Kumar Global Strategies, told CNBC that while the coronavirus outbreak may be a “black swan” event, it’s not the only major threat to global growth.
The point is that people say this is a black swan event and, had it not happened, [markets] wouldn’t have come down. The problem is there are always five or six major black swan events floating around, and any one of them could happen…
Global growth was already slowing, and this is just one more development in the pot.
Shifting from fundamental catalysts to technical stock market indicators, the 2-year and 5-year Treasury yield curve (a popular recession canary) inverted for the first time since December 4th.
Even more concerning, the Dow’s sharp pullback came directly after the index made brief contact with the upper band of a century-long trendline.
Mighty Apple (NASDAQ: AAPL) stock fell more than 2.8%, global risk-bellwether Caterpillar dove 3%, and another company with huge exposure to China – Nike – suffered a 1.95% hit.
Boeing stock was another high-profile loser, dragging 1.7% on the index.
It was not all doom and gloom, though.
Defensive play Walmart moved 1.2% higher, while pharmaceutical giants Pfizer and Johnson & Johnson clawed their way into the green. Some of the interest in these drug-makers is based on hopes that one of them manages to come up with a desperately needed coronavirus vaccine.
This article was edited by Josiah Wilmoth.