The Dow dropped sharply on Friday as a sky-high stock market endured genuine risk-off after the Wuhan coronavirus outbreak intensified.
The coronavirus outbreak dealt the Dow Jones a massive blow on Friday, as the death toll rose in China and health officials confirmed a second U.S. case.
While all of the three major U.S. stock market indices were in the red, the Dow Jones Industrial Average was the strongest performer.
After falling nearly 300 points, the Dow rebounded back above the 29,000 level. At last check, the index had suffered a net loss of 132.69 points or 0.44% to trade at 29,031.32.
The S&P 500 fell 0.8%, and the Nasdaq retraced 0.77% to round out a volatile session for U.S. stocks.
Awash in clear risk-off conditions, crude oil fell another 2%, while the price of gold rallied 0.5%.
As global concern about the Wuhan coronavirus continues to escalate, risk-off conditions come at a bad time for a Fed-pumped stock market.
With a second case in the U.S. being monitored, and over 900 reported worldwide (with more than two dozen confirmed deaths), financial markets are having to consider the real possibility this develops into a global emergency.
U.S. economic data is nothing if not consistent, and while today’s PMI data demonstrated robust consumer appetite, manufacturing continues to slide. Unfortunately, the detente in Trump’s trade war is not yet filtering through to this troubled sector.
ING economist James Knightley is warily eyeing the combination of inflated asset prices and their vulnerability to a risk-off event.
He says Jerome Powell’s comments on the repo market at next week’s Fed meeting will be critical.
With equity markets remaining on an upward cash fueled trajectory at a time when corporate profits as measured on a GDP basis are looking unremarkable we are somewhat nervous that this exposes the U.S. economy to the threat of an equity market correction should an external shock emerge. Therefore we will be keen to hear what the Fed plans to do with this current programme.
Despite the strong correlation between the Fed’s intervention and the huge rally in the stock market, FOMC voters have pushed back against the thesis that balance sheet expansion is having any impact on the Dow. But this story is wearing thin.
Some of the world’s most influential investors cite a direct effect on the stock market:
On a negative day for the Dow 30, the index found sturdy support from a massive 8% bounce in Intel stock (NASDAQ: INTC) post-earnings.
Adding to the small but sturdy contingent of stocks in the green, the Dow Jones’ most heavily weighted stock, Apple (NASDAQ: AAPL), pushed 0.3% higher, while American Express (NYSE: AXP) managed a 2.6% gain.
Boeing (NYSE: BA) spent most of the day in the red, but rebounded sharply after FAA Administrator Steve Dickson said the 737 MAX could potentially return to service before mid-2020. BA shares rose just under 2%.
Dow Inc. was the worst-performing stock in the index. Shares fell 3.3%, putting the company at a miserable -11% on the year.
This article was edited by Josiah Wilmoth.