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U.S. stocks extended losses Friday, with energy shares leading the way lower at midday, as the spread of the COVID-19 epidemic from China to neighboring countries amplified worries about the impact on supply chains and global economic growth.
Energy shares were the biggest loser in the S&P 500 index with the sector down 1.8% on investor disappointment about the lack of and agreement to cut oil production by Saudi Arabia and Russia to offset falling demand resulting from the corornavirus.
How are benchmarks faring?
The Dow Jones Industrial Average DJIA, -0.88% fell 250 points, or 0.9%, to 28,964 while the S&P 500 SPX, -1.14% lost 37 points, or 1.1%, to trade at 3,335. The Nasdaq Composite Index COMP, -1.89% was off 175 points, or 1.8%, at 9,574.
On Thursday, the Dow closed down 128.05 points, or 0.4%, at 29,219.90, after hitting an intraday low at 28,959.65. The S&P 500 lost 12.92 points, or 0.4%, to end at 3,373.23. The Nasdaq Composite Index shed 66.21 points, or 0.7%, to settle at 9,750.96, after hitting an intrasession nadir at 9,636.94.
For the week, the Nasdaq Composite is off 1.6%, while the Dow is down 1.5% and the S&P 500 is 1.3% lower.
What’s driving the market?
Stock-market losses extended after IHS Markit said its “flash” U.S. services purchasing managers index fell to 49.4 in February from 53.4 in January. A reading of less than 50 indicates a contraction in activity. The IHS Markit U.S. manufacturing purchasing managers index fell to 50.8 in February from 51.9 in January, signaling a slowdown in activity growth.
The spread of COVID-19 inside and outside of China has been unsettling the market lately, likely contributing to gains in havens like government bonds and gold, with investors showing reluctance to hold on to equities heading into the weekend.
“The coronavirus outbreak contains a significant likelihood of impact to the global economy and the potential to become a black-swan type event,” warned BofA Global Research rates strategists led by Bruno Braizinha, in a client note Friday.
“The uncertainty has been reflected in the market and has naturally led to an increase in recession probabilities.”
Read: Fed’s Brainard backs aggressive action in next recession
Economists at Standard Chartered Bank on Friday estimated that COVID-19 could affect 30% of China’s imports and 10% of its exports, prompting them to lower their gross domestic product forecast for China this year to 5.5% from 5.8%.
South Korea has reported 48 more cases, bring its total infections from the novel coronavirus to 204, and in Japan, officials from Tokyo and Osaka said they wouldn’t hold large events such as school graduation ceremonies and entrance examinations for three weeks through mid-March, in an effort to contain the viral outbreak, The Wall Street Journal reported.
Meanwhile, the World Health Organization said Friday that there are 76,767 confirmed cases of the illness and 2,247 deaths, marking another day in which the number of new cases world-wide has slowed.
The full economic impact of the disease is unclear but early indications suggest that it is already denting China’s car sales. Chinese passenger car sales data for the first two weeks of February showed a year-over-year decline of 92%, Bloomberg News reported. And in the first 16 days of the month, only about 5,000 passenger cars were sold compared with nearly 60,000 in the same period of last year, the data showed.
“Nobody has a really good handle on just what the impact is on supply chains,” Luke Tilley, chief economist of Wilmington Trust, told MarketWatch. “Individual companies can identify their supply chains, but they aren’t as easily capable of identifying the next links down the chain. That makes it hard to peg the overall impact,” he said. “It’s understandable that some investors are moving to a risk-off mode.”
Separately, Coca-Cola KO, +0.50% said it estimates an approximate 2- to 3-point impact to unit case volume, 1- to 2-point impact to organic revenue and 1- to 2-penny impact to earnings per share for the first quarter, citing coronavirus. China ranks as the third-largest market in the world in terms of unit case volume. Shares were up 0.5%.
In other economic data, U.S. existing home sales fell 1.3% in January to a 5.46 million annual rate.
Which stocks are in focus?
- Deere & Co. DE, +7.92% said fiscal first-quarter to Feb. 2 net income rose 4% to $517 million, or $1.63 a share, while sales fell 4% to $7.63 billion. Shares jumped 7.8%.
- Shares of Virgin Galactic Holdings Inc. SPCE, -8.75% were down 6.4% after a powerful rally this week. Shares remain up 17.6% for the week.
- T-Mobile US Inc. TMUS, -1.33% shares edged 0.9% lower after it revised its merger terms with Sprint Corp. S, +5.59%
- Shake Shack SHAK, -2.41% shares fell 2.3% after the burger chain was downgraded by SunTrust Robinson Humphrey on guidance fears.
- Shares of Dropbox Inc. DBX, +22.54% surged 21.4% Friday, after one analyst called the cloud-storage company’s quarterly earnings and forward-looking commentary “potentially thesis-changing.”
- Ebay Inc. EBAY, +1.51% shares rose 2% Friday, following a Wall Street Journal report said there could potentially be a sale of the e-commerce company’s classified ad business, which operates mostly outside of the U.S.
How are other assets performing?
The price of a barrel of West Texas Intermediate crude for April delivery CLJ20, -0.97% on the New York Mercantile Exchange fell 49 cents, or 0.9%, to $53.38 a barrel, amid fears that cracks may be formingin the Saudi Arabia and Russia alliance over how far to cut oil production.
See: What a breakdown in the Saudi-Arabia-Russia oil alliance would mean to the market
Gold for April delivery GCJ20, +1.86% was headed for seventh straight gain, jumping 1.7% to $1,648.80 an ounce on Comex, adding to its rise to its loftiest levels since February of 2013.
The benchmark U.S. 10-year Treasury note TMUBMUSD10Y, -3.11% shed more than 5.7 basis points to 1.467% while the yield on the 30-year T-bond TMUBMUSD30Y, -2.27% extended its retreat to an all-time low. Bond yields fall when prices rise.
In Europe, the Stoxx Europe 600 SXXP, -0.49% fell 0.5%, while the FTSE 100 UKX, -0.44% lost 0.4%.
Trade was mixed in Asia overnight. The China CSI 300 000300, +0.12% rose 0.1%, Hong Kong’s Hang Seng Index HSI, -1.09% fell 1.1%, while the Shanghai Composite SHCOMP, +0.31% advanced 0.3%. Japan’s Nikkei NIK, -0.39% retreated 0.4%, while South Korea’s Kospi 180721, -1.49% tumbled 1.5%.
