Global Economic Collapse and Distress of Nations: Stocks Suffer Worst Week Since Financial Crisis Amid Coronavirus Fears. The S&P 500 tumbled for a seventh day, and other economic indicators are flashing warning signs.
Feb. 28, 2020Updated 4:18 p.m. ET NYTimes.
S&P 500 has its worst week since 2008.
Stocks tumbled for a seventh consecutive day on Friday, with the S&P 500 index falling about 0.8 percent, bringing its loss for the week to more than 11 percent. It was the worst weekly decline for stocks since the 2008 financial crisis. In early October that year, the S&P 500 fell about 18 percent.
The Dow Jones industrial average fell more than 1 percent on Friday.
The sell-off was fueled mostly by worry that measures to contain the virus would hamper corporate profits and economic growth, and fears that the outbreak could get worse. The selling has in a matter of days dragged stock benchmarks around the world into a correction — a drop of 10 percent or more that is taken as a measure of extreme pessimism.
In Europe, Britain’s FTSE 100 fell more than 3 percent and the Dax in Germany fell more than 4 percent. In Asia, the Nikkei 225 in Japan closed down 3.7 percent, the KOSPI in South Korea dropped 3.3 percent, and the Shanghai Composite in China dropped 3.7 percent.
Here’s how the major indexes around the world fared this week:
S&P 500 in United States: ⬇️ 11%
Dow Jones in United States: ⬇️ 12%
FTSE 100 in Britain: ⬇️ 11%
DAX in Germany: ⬇️ 12%
KOSPI in South Korea: ⬇️ 8%
Hang Seng Index in Hong Kong: ⬇️ 4%
Nikkei 225 in Japan: ⬇️10%
The Fed says it is willing to act if the outbreak worsens.
The Federal Reserve chair, Jerome H. Powell, moved to soothe investors on Friday, issuing a statement reaffirming that the central bank will use its tools and “act as appropriate to support the economy.”
While Mr. Powell said the “fundamentals of the U.S. economy remain strong,” he also noted that “the coronavirus poses evolving risks to economic activity” and said the Fed “is closely monitoring developments and their implications for the economic outlook.”
The chair’s fellow officials had earlier signaled a willingness to cut interest rates if the coronavirus outbreak worsens, laying out a scenario in which the central bank might respond as infections and quarantines spread globally.
Scott Minerd, chief investment officer of Guggenheim Investments, said that officials at the Federal Reserve Bank of New York had reached out on Thursday to ask whether he was seeing any signs of pressure or deterioration in funding markets, which are critical to Wall Street’s functioning.
While he did not see funding problems as of yet, Mr. Minerd said that the Fed may have to pressure banks to continue to provide financing or encourage use of the discount window if the situation worsens.
He said the U.S. economy would likely be tipped into a recession and stocks prices could fall by another 20 to 30 percent if the outbreak becomes a pandemic.
CENTRAL BANK CUTS
The Fed is weighing a response to the virus.
Wall Street’s jitters extend beyond stocks.
Other measures of the overall health of financial markets and corporate America are beginning to show signs of strain.
The most profound signal about the future of the global economy is that interest rates are plunging to record lows. The yield on the benchmark 10-year United States Treasury bonds fell to about 1.15 percent on Friday, down from 1.9 percent at the start of the year and 2.7 percent one year ago.
Wall Street is also skittish about risky debt. The biggest United States junk-bond fund — iShares iBoxx High-Yield Corporate Bond Exchange Traded Fund, which tracks an index of dollar-denominated risky corporate debt — has plunged by about 4 percent since Feb. 20, data Friday morning showed. The index posted a record outflow on Tuesday as spooked investors pulled nearly $1.6 billion out of the market.
High-yield debt, which is extended to companies viewed as more likely to fall short on payments, is usually the first to go bad if companies run into trouble. If coronavirus makes credit hard to come by and causes cash flows to dry up, for example, firms that are highly leveraged with shaky prospects could fall behind.
Oil prices are also sharply lower.
That means some relief at the pump for motorists this weekend. The national average price of regular gasoline has dropped two cents in the last week, to $2.45 a gallon, according to AAA. One half of that drop came from Thursday to Friday, suggesting the price decline is accelerating.
The nation has 256.4 million barrels of gasoline in stock, 1.4 million barrels more than last year. But the big drop in global oil prices is a much more important factor. At about $45 a barrel, the American benchmark oil price is at its lowest level since December 2018.
Oil producers are nervous since the break-even price for many wells in U.S. shale fields is about $45. So far, though, energy executives in West Texas report that they have made no major changes to drilling activities because of the coronavirus outbreak and its economic fallout. Officials also say there have experienced no disruptions in supplies of materials and equipment.
The virus is reverberating through global business.
Over the past few days, companies as varied as United Airlines, Anheuser-BuschInBev, Mastercard and Pfizer have said that the outbreak poses a threat to their 2020 earnings, and the overall effect of the outbreak on global corporations could increase the chance of a broader economic slowdown, analysts say.
Baker McKenzie, the law firm based in Chicago, shut its London office, which houses about 1,000 people, after a potential coronavirus case.
The airline group IAG, which owns British Airways and Iberia, said that it expected earnings to be weaker because of the virus, but it could not give accurate profit guidance for the year because of the uncertainty of the situation.
The Swiss government banned all gatherings of more than 1,000 people at least until March 15, forcing cancellation of the Geneva International Motor Show.
Facebook canceled one of its advertising events, which is attended largely by employees, and its annual F8 conference in California — one of the company’s most anticipated events where it showcases its products and plans for the future to software developers.
Employees at Amazon’s worldwide operations — the company’s largest division, which runs the technology and operations for warehouses, deliveries, Prime membership and physical stores, among other things — were told that they should not travel domestically or internationally “until further notice,” according to emails viewed by The New York Times.