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Business

Stock market sinks into bear territory as coronavirus declared a pandemic

By
Noah Manskar
Published March 11, 2020
Updated March 11, 2020, 6:56 p.m. ET

The Dow Jones industrial average officially dipped into bear-market territory on Wednesday as the World Health Organization declared the coronavirus outbreak a pandemic and Goldman Sachs predicted an end to the S&P 500’s 10-plus year bull rally.

The Dow lost 1,464.84 points, or 5.8 percent, to 23,553.23 — down 20 percent from its recent high set on February 12. The 20-percent decline marks the end of the Dow’s 11-year bull market — it’s longest ever.

A bear market is generally called when stocks decline 20 percent from recent highs due to widespread negative sentiment.

Stocks plunged as WHO director Tedros Adhanom Ghebreyesus rang alarm bells over the deadly coronavirus, which has spread to at least 114 countries, killing 4,607 worldwide.

“We are deeply concerned both by the alarming levels of spread and severity, and by the alarming levels of inaction,” Adhanom Ghebreyesus told reporters in declaring a pandemic.

Adding to investors’ fears, Goldman Sachs early on Wednesday predicted the S&P 500’s bull market is getting ready to fizzle. The bank projected the S&P 500 will drop 15 percent from its current level to 2,450 points by the middle of the year before rebounding in the fourth quarter.

The S&P ended the day down 4.89 percent to 2,741.40 — just shy of bear-market territory — while the Nasdaq lost 4.7 percent to 7,952.05.

“We can see the panic in the equity market,” said Jerry Braakman, chief investment officer of First American Trust told CNBC. “The big question for most people is, are we at the bottom yet? I think we’re only about halfway there.”

“We valued the future too high and now prices need to come back down. Permanently,” said Chris Rupkey chief financial economist of MUFG. “We’ll never see a repeat of 2019’s 28.8 percent gain in the S&P 500 again. Bet on it if you have anything left at all.”

President Trump on Monday promised a “very dramatic” fiscal stimulus package to stanch the economic bleeding caused by the coronavirus outbreak, which is quickly spreading through the US. But he has so far failed to deliver specifics of such a package.

On Wednesday, Treasury Secretary Steven Mnuchin said the Trump administration was considering delaying the April 15 tax deadline for most individual taxpayers and small businesses. But the plan failed to rally stocks, which have been falling for weeks as fears of the coronavirus has decimated air travel and has made large gatherings taboo.

“The problem facing markets today … is that precisely zero concrete policies have emerged,” Jeffrey Halley, a senior currency analyst at OANDA, wrote in a commentary. “Extra spending and where it is spent must be approved by Congress, and I suspect therein lies the problem.”

Trump has suggested that the stimulus may include funding for sick leave, aid for the struggling airline and cruise ship industries, and temporary cuts to payroll taxes. The president went so far as to float temporarily eliminating the payroll tax for employees and employers through the rest of 2020 in his meeting with GOP lawmakers, according to news reports.

But Democratic House Majority Leader Steny Hoyer called a payroll tax cut a “non-starter” that won’t be included in a coronavirus response bill headed for a Thursday vote in the chamber.

Wall Street is primarily looking for signs the government will step in rather than any particular measure — but the politics of a stimulus deal could hamper efforts to encourage investors, according to Jim Paulsen, chief investment strategist at the Leuthold Group.

“In order to get anything done you’re gonna have to get both sides of the aisle and that sort of limits I think what you can do,” Paulsen said. “It’s not like the president can enact a corporate tax cut, for example.”

The drop in US stocks came after the Bank of England cut its key interest rate by half a percentage point to 0.25 percent. That could spur hopes that the Federal Reserve will cut rates further at its meeting next week after slashing them last week, Rupkey said.