Wall Street tanked on Thursday, slamming the book on the longest-ever U.S. bull market after new travel restrictions to curb the coronavirus spread spooked investors and rattled world markets.
President Donald Trump's Europe travel ban, announced late Wednesday, sent all three major U.S. stock indexes into a tailspin, with the S&P 500 and the Nasdaq confirming their first bear market since the financial crisis.
The blue chip Dow suffered its worst one-day loss since October 1987's "Black Monday."
The benchmark S&P 500 and the Nasdaq have lost over a quarter of their value since reaching record closing highs just 16 sessions ago, as nations around the world grapple with how to contain the fast-moving coronavirus and its economic effects.
A bear market is confirmed when an index sinks 20% or more below its most recent closing high.
"The continued negative action in the market is telling us whatever's been done so far hasn't been enough," said Joseph Sroka, chief investment officer at NovaPoint in Atlanta. "People can't point to a tangible outcome that's going to restore normal daily life, so uncertainty remains.
"Prominent organizations, educational institutions and even sports leagues are foregoing events out of caution," Sroka added. "Leading institutions around the world are setting the tone. We're cautious because they're telling us to be cautious."
Trump's sweeping travel restrictions, limiting flights from continental Europe to the United States, sent European shares to a near four-year low and slammed airline stocks, already battered by the spread of COVID-19.
On Wall Street, airlines plummeted 19.6%.
Boeing Co fell another 18.1% as J.P.Morgan abandoned its long-term backing for the company's shares, setting the planemaker on course for its worst week ever.
The U.S. Federal Reserve is expected to cut interest rates for the second time this month at the conclusion of its two-day monetary policy scheduled for next week.
U.S. Treasury yields tumbled as anticipation grew for aggressive easing on the part of the Fed.
The New York Federal Reserve pumped more liquidity to banks, briefly reversing some of the day's losses. It was the third substantial increase in repo support announced by the U.S. central bank this week, a sign the Fed is taking drastic steps to inject more liquidity into the banking system as markets show signs of stress.
"Any government action that has dollars tied to it that's actionable for the banking system would be viewed as a positive," Sroka said. "But what the market is looking for is tangible evidence that the government is trying to stave off a recession."
Interest rate-sensitive bank shares dropped 10.5%, while corporate credit worries hit bond fund prices as companies began to draw on credit lines.
The CBOE Volatility index, a gauge of investor anxiety, shot up to levels not seen since November 2008, the height of the financial crisis.
The Trump travel ban also hit oil prices, sending front-month Brent crude down 8.6%. Oil prices were already under pressure after Saudi Arabia and Russia vowed to boost production, flooding the market with supply despite plummeting demand.
The S&P 500 Energy index lost 12.3%
The Dow Jones Industrial Average fell 2,352.60 points, or 9.99%, to 21,200.62. The Dow plummeted 22.6 percent on Oct. 19, 1987, also known as “Black Monday,” which amounted to 507.99 points at the time.1987. This past Monday. the Dow declined 2,014 points, or 7.8%, its biggest single-day loss at that time since October 2008.
The S&P 500 lost 260.74 points, or 9.51%, to 2,480.64. Trading was halted for 15 minutes shortly after the open in New York after the benchmark S&P 500 stock index tumbled more than 7%.
The Nasdaq Composite dropped 750.25 points, or 9.43%, to 7,201.80.
All 11 major sectors of the S&P 500 closed sharply lower.
Declining issues outnumbered advancing ones on the NYSE by a 23.77-to-1 ratio; on Nasdaq, a 17.69-to-1 ratio favored decliners.
GLOBAL CHAOS, WORLDWIDE FEAR
Panic hit world financial marketsafter stimulus efforts from the European Central Bank failed to calm investors alarmed by U.S. moves to restrict travel from Europe because of the coronavirus pandemic.
An MSCI global gauge of stocks posted its largest daily percentage drop on record, as did European shares. Wall Street's Dow industrials index recorded its largest daily decline since the Black Monday crash of October 1987.
The U.S. dollar responded atypically, rising against numerous currencies and gold in yet another sign of financial market stress. Oil prices sank further, while traditional safe-haven assets like gold and the Japanese yen lost value against the dollar.
In a televised address late on Wednesday that included support measures for the economy, U.S. President Donald Trump imposed restrictions on travel from Europe to the United States, shocking investors and travelers.
Traders were disappointed after hoping to see broader measures to fight the spread of the virus and blunt its expected blow to economic growth.
"The economy is going to grind to a halt in the next month and the recession risk is real now," said Zhiwei Ren, managing director at Penn Mutual Asset Management in Horsham, Pennsylvania.
Trump said the United States would suspend all travel from Europe, except Britain and Ireland, for 30 days starting on Friday. He later said trade would not be affected by the restrictions.
Worries spread far beyond stocks to companies' lines of credit and their ability to finance business activity in the short term.
Fear of the unknown "is gripping markets and it’s more impactful in the credit markets at the moment; liquidity has effectively evaporated," said John McClain, a portfolio manager at Diamond Hill Capital in Columbus, Ohio. "People are looking ahead and saying 'What’s this world going to feel like when we’re all working at home?'"
The European Central Bank approved fresh stimulus measures and temporarily dropped banks' capital requirements to help the euro zone cope with the shock of the pandemic, but kept interest rates on hold, disappointing markets.
The pan-European STOXX 600 index lost 11.48% and emerging market stocks lost 6.71%.
Japan's Nikkei futures lost 10.88%.
MSCI's gauge of stocks across the globe shed 9.51% and was down more than 20% from its 52-week peak. The index has lost more than 26% over the last 20 sessions.
The VIX volatility index - Wall Street's "fear gauge" - and an equivalent measure of volatility for the Euro Stoxx 50 hit their highest since the 2008 financial crisis.
INTO THE UNKNOWN
Fed fund rate futures are now pricing in a 1.0 percentage point cut, rather than 0.75, at a policy review next week.
The euro weakened after the ECB stimulus announcement.
Demand for dollars via the currency derivative markets surged to the highest levels in years in a sign that coronavirus-induced economic stress is starting to manifest itself in a broad scramble for funding in dollars.
"Dollar liquidity is king in times of crisis and that is what the blow-out in swap spreads is telling us," said Kenneth Broux, a currency strategist at Societe Generale in London.
He said this could mark a move into the next sell-off stage, which could mean a three-week-long worldwide rout in shares and riskier bonds giving way to a rush for dollars.
The dollar index rose 0.792%, with the euro up 0.08% to $1.1192.
The Japanese yen weakened 0.09% versus the greenback at 104.76 per dollar, while Sterling was last trading at $1.2585, up 0.11% on the day.
The Brazilian real, Colombian peso and Mexican peso all hit historic lows versus the greenback.
Bitcoin plunged 28.1% amid wild volatility in cryptocurrency markets.
Oil prices were also hit, compounded by an intensifying price war between Saudi Arabia and Russia, on top of fears of a sharp slowdown in the global economy.
U.S. crude fell 6.03% to $30.99 per barrel and Brent was last at $32.84, down 8.24% on the day.
Spot gold dropped 3.5% to $1,576.79 an ounce. Palladium dropped 20.6% to $1,831.09 an ounce.
Benchmark 10-year U.S. Treasury notes rose 3/32 in price to yield 0.8121%, from 0.822% late on Wednesday.
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