U.S. stocks fell sharply Monday — with the Dow Jones Industrial Average suffering its worst day since the “Black Monday” market crash in 1987 and its third-worst day ever — even after the Federal Reserve embarked on a massive monetary stimulus campaign to curb slower economic growth amid the coronavirus outbreak.
The Dow Jones Industrial Average closed 2,997.10 points lower, or 12.9%, at 20,188.52. The 30-stock Dow was briefly down more than 3,000 points in the final minutes of trading. The S&P 500 dropped 12% to 2,386.13 — hitting its lowest level since December 2018 — while the Nasdaq Composite closed 12.3% lower at 6,904.59 in its worst day ever.
The stock market staged a fresh plunge Thursday, pushing the S&P 500 index and Nasdaq Composite into a bear market and officially ending a record-setting, 11-year-old bull-market run — and in spectacular fashion.
The S&P 500 index SPX, +4.11% fell 9.51% to 2,480.64, the Dow Jones Industrial Average DJIA, +2.88% tumbled 9.99% to end at 21,200.62, representing the worst percentage drop for blue chips since October of 1987. Meanwhile, the Nasdaq Composite Index COMP, +4.37% gave up 9.43% to close at 7,201.80. On Wednesday, the Dow fell into a bear market and the Nasdaq and S&P 500 joined the benchmark on Thursday.
Trading was temporarily halted shortly after markets opened because of the steep declines – the second time the market’s fail-safe had been triggered in mid-day trading this week. Outside of Black Monday and twice during the Great Depression of 1929, the Dow hasn’t seen a worse day in history.
Uncertainties around the economic impact of COVID-19, the infectious disease that originated in Wuhan, China in December and has infected 128,000 people, has decimated investor buying appetite. Worries about accelerating problems in the oil patch, also helped to fuel almost-indiscriminate selling of assets considered risky and haven assets like bonds and gold alike.
A drop of at least 20% from a recent record peak is the widely accepted definition for a bear market. “While there continues to be human tragedy, the latest developments also add to investor uncertainty. There is little doubt that there will be a dramatic short-term impact on the economy. The probability of at least one quarter of negative economic growth is high,” wrote strategists at SunTrust Advisory in a late-Thursday note.
“Therefore, a key question for longer-term investors is: Are the economic effects of the coronavirus likely to be similar to a storm or will it cause permanent damage to the economy?” the analysts wrote.
“Government missteps and inability to contain the rapidly spreading coronavirus is causing global commerce to rapidly grind to a halt,” Scott Anderson, chief economist and executive vice president at Bank of the West Economics, wrote in a research note on Thursday.
Companies and state and local governments announced a slew of policy changes and cancellations on Thursday in a bid to slow the spread of the disease in the U.S. More than 1,300 domestic cases have been confirmed. The virus has sickened more than 126,000 around the world, killing more than 4,000.
Losses continued despite news that the Federal Reserve Bank of New York would pump more than $1 trillion into the U.S. financial system to inject liquidity into a panicked market.
Wall Street’s disastrous Thursday comes just a day after President Donald Trump announced plans to restrict travel to Europe – a move that sent already troubled travel and airline stocks into a tailspin. The administration is also lobbying lawmakers for payroll tax cuts, though gridlock is expected on Capitol Hill as Democrats push for paid sick leave measures and broader social safety nets that are unlikely to sit well with Republicans.
“However, despite these announcements, financial markets were disappointed by the absence of concrete measures targeted at the most affected populations including paid sick leave, enhanced unemployment insurance, free coronavirus testing, enhanced supplemental assistance programs and support for health care workers,” Gregory Daco, chief U.S. economist at Oxford Economics, wrote in a research note on Thursday.
“The markets are getting no break with yesterday’s historic Fed actions and COVID-19 dominating the world’s headlines,” Frank Cappelleri, executive director at Instinet, said in a note. “While the news continues to worsen and with the price action doing things we’ve only seen a handful of other times in the last century, it’s nearly impossible to keep things in perspective.”
“We can’t argue the facts, and we’re dealing with a much bigger issue than just the economy,” Cappelleri said.
The major averages fell to their lows into the close after President Donald Trump said the worst of the outbreak could last until August. He also told reporters the U.S. “may be” heading into a recession.
“The market didn’t hear what it wanted to hear. I don’t think that it wanted to hear that this was going to last until July and August, and now the market does the math. If it lasts until July and August, that means we maybe have a contraction in the second quarter and the third quarter, and that means recession,” BNY Mellon strategist Liz Young said on CNBC‘s “Closing Bell.”
Monday’s losses put the Dow down 31.7% from its all-time high and the S&P 500 and Nasdaq more than 29% below their records last month. The Dow fell to its lowest point since 2017.
The Dow’s drop was the worst decline since its “Black Monday” crash three decades ago when it fell more than 22%. The drop surpassed its 9.99% tumble last Thursday. It was also the Dow’s third-worst day ever; it dropped more than 13% in late 1929.
Trading was halted for 15 minutes shortly after the open as a then-8% drop on the S&P 500 triggered a so-called circuit breaker. It was the third time in the last week a circuit breaker was triggered. Those circuit breakers are imposed by the exchanges to maintain orderly market behavior.
While the central bank’s actions may help ease the functioning of markets, many investors said they would ultimately want to see coronavirus cases peaking and falling in the U.S. before it was safe to take on risk and buy equities again.
The Fed’s move, in tandem with headlines suggesting the White House is preparing a tax break for consumers and a bailout for the airlines industry, made some investors more optimistic on the market.
“This entire market would turn around in one second if the government came out and said, we’re going to provide business interruption insurance to companies that lose money in the second quarter if they don’t fire any workers,” Ricky Sandler, Eminence Capital CEO, told CNBC‘s Scott Wapner.
But that optimism gave way into the close as President Trump spoke at a press conference on the coronavirus from the White House.
On Sunday, the Fed cut interest rates down to basically zero, their lowest level since 2015, and launched a massive $700 billion quantitative easing program. Trump said he was “very happy” with the announcement, adding: “I think that people in the markets should be very thrilled.”
“This, coupled with an important fiscal package, should help cushion the economic downside from the virus’ effect on economic activity,” said Quincy Krosby, chief market strategist at Prudential Financial. “It’s going to be positive, but the market is at the mercy of the virus and at the mercy of whether the containment policies work.”
The Fed’s announcement came after it issued another emergency rate cut earlier this month. It also comes on the heels of the market’s biggest one-day gain since 2008, with the major averages all surging more than 9% on Friday.
However, news about the coronavirus outbreak did not help sentiment. U.S. cases have jumped to 3,774 and 69 deaths, according to Johns Hopkins University. The Centers for Disease Control and Prevention urged organizers to cancel or postpone events with more than 50 people. New York, New Jersey and Connecticut governors banned eating in restaurants and limited events to less than 50 people.
Amid the dire headlines on the coronavirus, investors called for a substantial fiscal response from Congress and the White House.
U.S. airlines are seeking $50 billion in government assistance to curb the virus’ blow to the industry, according to CNBC. Sen. Mitt Romney, R-UT, proposed Monday sending every U.S. adult $1,000 to ease the financial pain from the virus. That proposal came after National Economic Council Director Larry Kudlow said the administration “might” provide direct cash assistance to U.S. households. Sen. Chuck Schumer, D-NY, will reportedly propose a stimulus package of at least $750 billion.
“The main problem this time as to other market disruptions is the abrupt closure of economic activity,” said Dan Deming, managing director at KKM Financial. “The speed of the impact to middle America, let alone the global community is relatively unprecedented.”
Apple shares plunged by 12.9%. Bank stocks took a hit, with Bank of America and JPMorgan Chase each dropping more than 14%. Morgan Stanley fell 15.6% while Citigroup dropped 19.3%. The big banks announced Sunday they were halting their buyback programs in an effort to provide capital where needed.
Airline came off their lows after Trump said the administration would “backstop the airlines.” Delta shares closed just 6.7% lower after falling more than 10%. American Airlines was up more than 10% after plunging earlier in the day.
Investors have been dumping equities amid worries the coronavirus will slow economic growth and take a bite out of corporate profits. Economists at JPMorgan see negative growth for the first quarter while Goldman Sachs downgraded its first-quarter growth forecast to flat from 0.7%.
“The rapid spread of COVID-19 across the globe has dramatically heightened investor uncertainty and rocked global financial markets,” strategists at MRB Partners said in a note, adding the situation will “get worse before it gets better.”
“Looking ahead, the number of active cases is likely to worsen in the near run,” they said.
—CNBC’s Jeff Cox, Silvia Amaro and Pippa Stevens contributed to this report.
* Expanded from original sources: