Stocks Open Sharply Lower; Dow 10% Below Recent Record High
NEW YORK (AP) — Stocks fell sharply in early trading Thursday, extending a weeklong rout and bringing the Dow Jones Industrial Average 10% below the record high it hit just two weeks ago.
Microsoft and Budweiser maker InBev became the latest large companies to warn investors about the virus’ potential hit to its finances. Meanwhile nations are taking increasingly drastic measures to try and contain the outbreak and the fears over the potential spread in the U.S. are rising.
Bond yields continued sliding in a further sign that investors were shifting money into lower-risk assets. The yield on the 10-year Treasury fell further into record low territory, to 1.25% from 1.31% late Wednesday. Gold prices edged higher.
The S&P 500 slid 2.4% as of 10:10 a.m. Eastern time. The broad index is now on track for its worst week since November 2008, during the global financial crisis. If the losses last through the close of trading, the S&P 500 will have its first 10% decline from a recent peak, what’s known among market watchers as a “correction,” since late 2018.
The Dow lost 616 points, or 2.3%, to 26,349. The Nasdaq slid 2.3%.
Technology stocks again led the decline. Microsoft lost 2.8%. The software giant told investors that the virus will hurt revenue from its Windows licenses and its Surface devices.
American Airlines plunged 8.5% as airlines continue to feel pain from disrupted travel plans and suspended routes. Delta Airlines, which is reducing flights to South Korea because of the outbreak in that nation, fell 4.5%.
Financial warnings also came from Budweiser maker InBev and cloud-computing company Nutanix.
The virus has now infected more than 82,000 people globally and is worrying governments with its rapid spread beyond the epicenter of China.
In California, health officials say a new coronavirus case could be the first in the U.S. that has no known connection to travel abroad or another known case, a possible sign the virus is spreading in a community.
Japan will close schools nationwide to help control the spread of the new virus. Saudi Arabia banned foreign pilgrims from entering the kingdom to visit Islam’s holiest sites.
Italy has become the center of the outbreak in Europe, with the spread threatening the financial and industrial centers of that nation.
The price of crude oil fell 4.7%. The price has been falling sharply as investors anticipate that demand for energy will wane as the economy slows.
At their heart, stock prices rise and fall with the profits that companies make. And Wall Street’s expectations for profit growth are sliding away. Apple and Microsoft, two of the world’s biggest companies, have already said their sales this quarter will feel the economic effects of the virus.
Goldman Sachs on Thursday said earnings for companies in the S&P 500 index might not grow at all this year, after predicting earlier that they would grow 5.5%. Strategist David Kostin also cut his growth forecast for earnings next year.
Besides a sharply weaker Chinese economy in the first quarter of this year, he sees lower demand for U.S. exporters, disruptions to supply chains and general uncertainty eating away at earnings growth.
Such cuts are even more impactful now because stocks are already trading at high levels relative to their earnings, raising the risk. Before the virus worries exploded, investors had been pushing stocks higher on expectations that strong profit growth was set to resume for companies.
The S&P 500 was recently trading at its most expensive level, relative to its expected earnings per share, since the dot-com bubble was deflating in 2002, according to FactSet. If profit growth doesn’t ramp up this year, that makes a highly priced stock market even more vulnerable.
Goldman Sach’s Kostin said the S&P 500 could fall to 2,900 in the near term, which would be a nearly 7% drop from Wednesday’s close, before rebounding to 3,400 by the end of the year.
Traders are growing increasingly certain that the Federal Reserve will be forced to cut interest rates to protect the economy, and soon. They’re pricing in a better than two-in-three probability of a cut at the Fed’s next meeting in March. Just a day before, they were calling for only a one-in-three chance.
Several companies have managed to gain ground in the latest rout of stocks. Gilead Sciences, which is testing a potential vaccine for the virus, rose 3.8%. Teleconferencing company Teladoc surged 19.8%. 3M, which counts surgical masks among its many products, rose 1.5%.
By Damian J. Troise and Stan Choe