Investors sold off shares across the world for a second day on Tuesday as fears of the economic impact of the coronavirus continued to grow.
In New York the major markets experienced their biggest drop in two years amid fears that the growing virus outbreak will put the brakes on the global economy and more companies warned the outbreak will hurt their finances.
The Dow Jones lost 877 or 3.1%, the tech-heavy Nasdaq dropped 2.7% and the S&P 500 fell 3% following similar losses across the Atlantic.
In London the FTSE 100 index closed at its lowest level in a year, down 1.9% at 7,018, lowering the value of Britain’s blue-chip companies by about £35bn and contributing to a two-day loss of nearly £100bn. Germany’s Dax fell 1.8% and in France the CAC fell 1.94%.
Stock markets remained close to all-time highs only last week as investors bet the virus would cause only short-term disruption to the global economy. But new cases of the virus are being reported in Europe and the Middle East, far outside the epicenter of China, and have raised fears that the virus could spread further.
The sell-off accelerated after the Centers for Disease Control and Prevention warned that the coronavirus will impact the US. “It’s not so much of a question of if this will happen in this country any more, but a question of when this will happen,” Dr Nancy Messonnier, director of the National Center for Immunization and Respiratory Diseases, said on Tuesday.
Donald Trump has said the coronavirus is “very much under control” in the US and that the stock market was “starting to look very good to me!” His message was backed by Larry Kudlow, the US National Economic Council director, on Tuesday who told the Washington Post: “If you’re a long-term investor, you should seriously consider buying these dips.”
The worst-case scenario for investors hasn’t changed in the last few weeks where the virus spreads around the world and cripples supply chains and the global economy, but the probability of it happening has risen, said Yung-Yu Ma, chief investment strategist at BMO Wealth Management.
“It’s the combination of South Korea, Japan, Italy and even Iran” reporting virus cases, Ma said. “That really woke up the market, that these four places in different places around the globe can go from low concern to high concern in a matter of days and that we could potentially wake up a week from now and it could be five to 10 additional places.”
Technology stocks, which rely heavily on China for both sales and supply chains, once again led the decline. Apple dropped 1.4% and chipmaker Nvidia fell 4.2%.
Bond prices continued rising. The yield on the 10-year treasury fell to 1.32%, a record low, down from 1.37% late Monday. Energy companies fell as crude oil prices headed lower.
The viral outbreak that originated in China has now infected more than 80,000 people globally, with more cases being reported in Europe and the Middle East.
United Airlines fell 5.2% after withdrawing its financial forecasts for the year because of the impact on demand for air travel. Mastercard dropped 5.2% after saying the impact on cross-border travel and business could cut into its revenue, depending on the duration and severity of the virus outbreak.
The chief risk is that the stock market was already “priced to perfection,” or something close to it, before the virus worries exploded, according to Brian Nick, chief investment officer at Nuveen.
After getting the benefit of three interest-rate cuts from the Federal Reserve last year and the consummation of a “Phase 1” US-China trade deal, investors were willing to pay high prices for stocks on the expectation that profits would grow in the future.
But if profit growth doesn’t ramp up this year, that makes a highly priced stock market even more vulnerable. After a growing number of companies have cut or withdrawn their revenue and profit forecasts for the year, analysts have slashed their expectations for S&P 500 earnings growth to 7.9% for this year, down from expectations of 9.6% at the start of 2020, according to FactSet.