The Dow Jones tumbled on Thursday as the coronavirus epidemic continued to escalate, with one scary development hitting especially close to home for the U.S. stock market.
Commodity markets swayed under the weight of Chinese growth fears, and domestic data didn’t do much to steady the boat at home.
Worldwide financial markets endured strong risk-off moves after the number of Chinese coronavirus cases surged past 8,000.
Providing an additional punch to the downside, the U.S. CDC acknowledged the first case of human-to-human transmission in the United States.
The news pounded U.S. stocks, which spent a volatile session bouncing between losses and… steeper losses.
The Dow Jones Industrial Average was the “strongest” among Wall Street’s three primary indices, falling just 122.23 points or 0.43% to 28,612.22.
The Nasdaq declined 0.48%, while the S&P 500 languished 0.5% lower.
In the commodity sector, coronavirus fears wreaked havoc on energy markets. The price of WTI crude oil fell 2.4%, and Brent crude slid 2.6%.
Reacting to the move from risk, the price of gold rallied 0.75% to $1,587. Bitcoin extended its recovery, rising 2% to just over $9,480.
As the Wuhan coronavirus continues to spread, the World Health Organization’s decision to label it an international crisis appears imminent.
A portion of the Dow Jones’ rally over the previous two days has been based on the WHO’s reluctance to make this determination, so as the probability has increased, it’s unsurprising to see the Dow give up a chunk of its gains.
The first case of human-to-human transmission in Chicago did little to calm concerns about the spread of the virus within the continental United States.
On the data front, initial jobless claims came in slightly higher than expected at 216,000, while U.S. GDP landed on target at 2.1%. Growth is particularly relevant at the moment, as Wall Street wrestles with the disconnect between economic indicators and a sky-high stock market.
ING economist James Knightley picked apart the latest GDP number, warning that crucial sectors continue to lag high consumer sentiment, prompting a rather lackluster forecast for this year’s growth.
The concern surrounding business investment continues with non-residential fixed investment declining for the third consecutive quarter.
Meanwhile, the slowdown in consumer spending growth was more marked than expected given the strength of sentiment, the strong jobs market and record stock prices.
We currently look for 1Q GDP growth of around 1.5%, with full year growth around 1.7%.
Knightley said that the coronavirus outbreak remains a valid threat to the stock market and U.S. economy, which is once again flirting with recession indicators.
It is far too early to say whether the coronavirus outbreak will have a dampening effect on U.S. economic activity, but in an environment of already subdued global growth, it certainly increases the downside risks.
The U.S. yield curve, which is flirting with inversion once again, highlights broader market fears that the virus and its human and economic threat could spread.
A risk-off day in the Dow 30 saw some sizeable losses in powerhouse stocks. Apple (NASDAQ: AAPL) was unusually weak, dipping 1.3% as fears over weak demand in China plagued the tech company.
Dow Jones retail giant Nike was one of the worst-hit, shedding more than 2%. The company’s sizeable exposure to China, both on the consumer and production sides, makes it particularly exposed to the coronavirus’ spread.
Microsoft (+2.3%) and Coca-Cola (+2.65%) were both shining in the green after sturdy earnings releases shielded them from further risk-off in the broader stock market.
This article was edited by Josiah Wilmoth.
Last modified: February 5, 2020 9:10 PM UTC