The Dow Jones dove 1,000 points on Thursday as the economic impact of the coronavirus grew even more uncomfortably obvious.
Stock market bulls recoiled as New York and California reported a rising number of cases, while a massive 7% drop in Boeing (NYSE: BA) exaggerated the decline in the Dow.
With coronavirus volatility once again gripping the U.S. stock market in its bloody talons, all three of Wall Street’s major equity indices plunged off yesterday’s highs.
In the commodity sector, the price of gold continued to rally, jumping 1.8% to $1,672.
Crude oil lurched in the other direction, despite sizeable production cuts from OPEC. It slid 2.1% to below the $46 handle.
U.S. Treasury yields plummeted with stocks, and the 10-year hit another record low beneath 0.9% today as Fed easing and growth prospects weighed on financial markets.
On the data front, it was unsurprising to see that U.S. factory orders were worse than expected, printing -0.5% against the -0.1% consensus forecast.
Dow bulls who spent Wednesday reveling in one of the biggest daily point gains ever were caught off guard on Thursday when the coronavirus spread appeared to accelerate in the U.S.
Fears of a “dead cat bounce” may be coming to fruition, as investors have failed to push equities higher. Despite a huge global stimulus effort from central banks, consumer demand in vulnerable sectors is cratering.
Given the economic importance (as well as population density) of areas like New York City and California, recent headlines have been particularly harmful to market sentiment.
New York now has 22 confirmed cases, while California is in a state of emergency with a cruise ship sitting off the coast carrying a slew of symptomatic passengers.
Efforts to increase the number of patients tested appear to be confirming what many feared about the extent of the outbreak as Seattle and Silicon Valley firms make efforts to protect their employees.
While moves in the Dow Jones are not technically in the Federal Reserve’s mandate, their recent emergency cut – which appeared to respond to last week’s stock market plunge – may have been within their mandate after all.
Economist Bill Diviney at ABM AMRO draws a persuasive link between the stock market and the trajectory of the real economy, stating,
Consumer confidence tracks moves in equity markets remarkably closely in the US, with a lag. Sharp falls in equity markets can therefore affect the real economy by weighing on consumer confidence.
While the Fed is not in the business of propping up markets for the sake of it, disorderly market moves of the type we saw last week arguably pose undue risks to the growth outlook.
This would explain Jerome Powell’s decision to slash interest rates by 50 basis points, but it also outlines the futility of this move as the Dow slides once again.
It was another sea of red in the Dow 30, and every single member fell on the day.
Leading the decline was Boeing (NYSE: BA) stock, which crashed 7.3% as airlines make drastic steps to cut back as demand for travel craters amid the health crisis.
The Dow Jones’ most heavily weighted stock, Apple (NASDAQ: AAPL), fell 2.9% but could be supported by a rebound in Chinese factory production that should help restore its supply chain.
Disney (NYSE: DIS) was down 4.8% because its parks and resorts are expected to take a sizable hit from the coronavirus. Consumers may also start cutting back on cinema-going, which could weigh on box office sales around the world.
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