The Dow Jones crashed over 650 points on Friday, erasing every inch the stock market had gained in 2020.
Despite a strong rally on Thursday, Wall Street changed its tune on the coronavirus outbreak after corporations around the world canceled travel to the region.
Intensifying the sell-off, news broke that Trump was weighing a possible ban on all U.S. travel to China. [Washington Post].
The weakness was global, and China’s coronavirus woes battered European and Asian stocks too.
Unsurprisingly, the commodity sector roared with volatility. Crude oil took a 1.5% hit as global demand fears hit energy markets. Despite the distinct risk-off conditions, the price of gold was only 0.24% higher on the day.
U.S. data releases were mostly positive, but investors ignored a spike in consumer sentiment as they began to price in the adverse effects of the coronavirus outbreak on next month’s reading.
Adding to the ill-feeling, eurozone economic growth and inflation data were very weak [Investing.com] on the eve of the U.K.’s formal exit from the European Union.
With airlines around the globe canceling flights to China [USA Today], the economic impact of the coronavirus on the global economy is becoming more difficult to ignore.
Given that so many members of the Dow Jones have substantial exposure to China, the selling was intense on Friday. Even more so after news broke that Donald Trump may ratchet up U.S. travel restrictions to China beyond the “do not travel” advisory issued earlier in the week [U.S. State Department].
If that wasn’t enough for Dow bulls to stomach, the United States’ top expert on contagious diseases said that it was “absolutely possible” that the coronavirus can spread before patients exhibit symptoms [CNN].
Wall Street was initially quite relaxed about the impact of the coronavirus on the U.S. economy, but that optimistic attitude evaporated after Goldman Sachs predicted a sizeable hit to GDP [CNBC] during the first quarter.
Stock market investors are racing to get out of positions ahead of what is expected to be a brutal session when China finally re-opens its equity markets on Monday following the extended Lunar New Year holiday.
In a note shared with CCN.com, global credit specialist Euler Hermes explained that sectors with substantial exposure to the travel, hospitality, and luxury goods industries could suffer the most from a prolonged coronavirus outbreak.
The industries most likely to be immediately impacted by the epidemic are bearing the brunt, with the sectoral components of the MSCI World index for airlines, textiles apparel & luxury goods and hotels, restaurants & leisure declining by 6.9%, 6.4%, and 4.7%, respectively, since 20 January.
Dow giant Nike is one such stock, but the S&P 500 has the highest contingent of companies with exposure, including Tiffany & Co., American Airlines, and Wynn Resorts.
It was a miserable day for the Dow 30, whose most heavily weighted stock – Apple (NASDAQ: AAPL) – plummeted more than 4.3%. The tech giant’s broad exposure to China didn’t help the stock, and its recent rally leaves it exposed to profit-taking.
Caterpillar (NYSE: CAT) darkened the mood with a bleak outlook for 2020 [Caterpillar]. CAT is seen as a bellwether for global growth due to its involvement in development around the world. Its exposure to China didn’t help its share price today. The stock’s 4% dip leaves it down more than 10% in January.
Defying the turmoil in the Dow Jones, IBM (NYSE: IBM) held 4.6% higher after its positive earnings release.