The Dow Jones dove nearly 300 points on Friday as investors ignored a solid jobs report and shifted their focus to the coronavirus epidemic’s effect on global growth.
Despite Donald Trump’s optimistic comments about China’s efforts, the number of cases has spiked above 31,000. Mike Pompeo’s pledge to offer major financial assistance has Wall Street wondering how serious the situation really is.
Of the three major U.S. stock market indices, the Dow Jones Industrial Average was comfortably the weakest.
Roughly an hour before the closing bell, the Dow had lost 264.25 points or 0.9% to settle at 29,115.52.
The Nasdaq and S&P 500 fared moderately better, with both losing around 0.5% on the day.
Stocks are down today, but they’ve weathered the epidemic with relative ease. The same has not been true of commodities. The sector remains under pressure as China, the world’s manufacturing hub, struggles with lockdowns and shaky sentiment.
Crude oil fell 1.2% on Friday, and demand woes have dragged it back down to the $50 per barrel handle. Base metals got shellacked, while silver and copper both struggled.
Safe-haven gold was able to rise around 0.35%.
Economic data remain robust in the United States, but today’s releases didn’t do much to bolster risk sentiment.
Friday’s jobs report showed a better than expected 225,000 gain in non-farm payrolls, although unemployment and wages underperformed expectations.
All eyes now turn to next month’s labor stats, which will have more of the coronavirus impact baked into them.
The Federal Reserve was once again at the forefront of investors’ minds on Friday, but not because of interest rate adjustments or liquidity injections.
The Fed’s decision to mention the coronavirus outbreak in their monthly monetary policy report may have given stock market bulls some pause.
From the report:
Possible spillovers from the effects of the coronavirus in China have presented a new risk to the outlook.
Then again, the Dow Jones still trades above 29,000, and Wall Street looks far from panic-stricken about the potential impact from the slowdown in Asia. At worst, investors are brushing it off as transitory. At best, they’re hoping for an imminent cure.
But with the Trump administration now prepared to offer $100 million in assistance to China, bulls may begin to question whether they should be more nervous.
Françoise Huang, senior economist for APAC at Euler Hermes, told CCN.com that despite the apparent calm in global stock markets, the coronavirus outbreak will pummel China’s GDP.
We expect the new coronavirus to knock -1pp of China’s GDP growth this year, with the majority of the impact to come in Q1.
Chemicals, transport, textiles and electronics will be the hardest hit as travel barriers disrupt supply chains and the protracted pause in Chinese economic activity continues.
The epidemic and the associated fear factor will weigh on consumer spending.
This would put Dow giants like Apple at risk. Big oil stocks, including Chevron and Exxon Mobil, would suffer too as demand for fossil fuels plunges amid the decline in travel. Textiles woes pose a threat to Nike due to its reliance on China for production.
Focusing on the broader impact on global markets, Sebastian Galy from Nordea Asset Management told CCN.com that he is astounded that the U.S. stock market hasn’t priced in more consequences from the coronavirus epidemic.
Loreal issued a warning on its Asian sales, and it beggars belief that consequence is not priced in. From experience in Africa when protesters would close shops for a few days, the impact on growth can be considerable. We and others (JPM) have pegged this shock at -0.3% on global growth, and the odds are that it is worse.
Dow Inc. (NYSE: DOW) was the worst performer, sliding 3%. Apple (NASDAQ: AAPL) and Nike (NYSE: NKE) lost around 1%.
Boeing (NYSE: BA) also gave back some of its weekly gains, losing 1.2% after another 737 MAX glitch emerged and its Starliner test got a “catastrophic” review from NASA.
Microsoft (NASDAQ: MSFT) solidified its place as the top-performing stock in the Dow Jones this year, despite paring most of its intraday rally. MSFT shares are up 17.5% year-to-date.
This article was edited by Josiah Wilmoth.