Markets Plummet, Dow Drops Over 600 Points As Coronavirus Infections Outpace SARS
Topline: The stock market plunged on Friday after major U.S. airlines suspended travel to China and investors worry about the impact of the fast-spreading coronavirus on the global economy.
- Stocks plunged on Friday with the Dow Jones Industrial Average falling by 2.1%, the S&P 500 by 1.8% and the Nasdaq Composite by 1.6%. The Dow posted its worst single-day drop since August 2019—and fifth-biggest drop ever, while the S&P 500 saw its largest decline since October.
- The World Health Organization on Thursday declared the deadly coronavirus, which has now infected nearly 10,000 people and killed at least 213—making it more infectious than the 2003 SARS outbreak, as an international health emergency.
- Despite the coronavirus being top of mind for markets, this was also a big week for corporate earnings: Amazon stock rose up to 10% after the company trounced expectations yesterday—sending its market cap back above $1 trillion, while Facebook also beat analyst estimates—but rising costs and decelerating revenue growth sparked a 6% selloff in its shares.
- Adding to the bad news on Friday was the Cboe Volatility Index (VIX), a widely-used fear gauge in the market, rising more than 37% this month and breaking above 19 for the first time since October 2019.
- The Federal Reserve unanimously voted to leave interest rates unchanged on Wednesday, though Fed Chair Jay Powell did address the impact of the coronavirus in his press conference: “Clearly there will be implications at least in the near-term, but we’ll have to see what the macroeconomic effects will be on the rest of the world.”
- Several groups of stocks have continued to be particularly hard hit by coronavirus fears in the past couple of weeks: Airlines stocks have declined amid more China travel restrictions, casino companies struggled as the disease impacted tourism, while travel and cruise stocks also plunged amid cancelled trips.
Crucial quote: “The week wasn’t a terrific one in terms of price performance (Friday was especially ugly),” Vital Knowledge founder Adam Crisafulli wrote in a recent note. “Stocks will stay prone to sudden, sharp, and inexplicable swings for the foreseeable future,” he predicts. “The coronavirus is a wildcard.”
Big numbers: With the coronavirus now surpassing the level of severity seen in the 2002-2003 SARS outbreak (which killed some 800 people and infected 8,000), there are rising concerns over its impact on China’s already slowing economic growth—and subsequently, what effect that could have on the global economy. Indeed, there has been a large number of coronavirus-related work stoppages and travel restrictions being imposed by governments and companies across the board. SARS is estimated to have wiped out $40 billion from world markets, according to one study. China’s current annual projected growth rate is 5.9%—but that could be dragged down by 0.5% to 1%, according to estimates from the Economist Intelligence Unit, or by as much as 1.2%, according to S&P Global.
What to watch for: Whether mainland Chinese markets “suffer a steep decline when they re-open for trading on Monday and play catch-up to the rest of the world,” says Crisafulli, who also cites significant concern over the virus’ impact on China’s first quarter GDP results.
Tangent: Typically during a week like this Wall Street would have been focused on corporate earnings—with numerous major companies reporting earlier this week, but China’s coronavirus has played a huge role in the direction of stocks recently. Of the nearly 200 companies in the S&P 500 which have reported earning so far, 69.5% have beaten analyst estimates so far, while 20.4% have reported below expectations (In a typical quarter, 65% of companies beat estimates and 20% miss estimates), according to Refinitiv. Amazon shares surged more than 10% on Friday morning thanks to quarterly earnings that easily beat analyst expectations, which sent the company’s market cap back above $1 trillion (Apple, Microsoft and Google parent Alphabet are the only other U.S. companies in the $1 trillion club). Amazon posted a profit of $6.47 per share versus $4.03 expected and revenue of $87.4 billion compared to an expected $86 billion. Facebook stock, on the other hand, has now dropped almost 10% since reporting earnings on Wednesday. Its share price plummeted thanks to decelerating revenue growth and a 51% rise in costs compared to the year before, which alarmed investors