Stocks cut gains as coronavirus fears linger

FAN Editor

Stocks gave back most of their earlier gains on Wednesday as the 10-year Treasury yield traded near record lows amid concerns over the coronavirus spreading even further.

The Dow Jones Industrial Average was up just 90 points, or 0.3% after being up as much as 461.42 points, or 1.7%, earlier in the session. The 30-stock average briefly turned negative around midday. The S&P 500 traded just 0.4% higher after rallying more than 1% to start off Wednesday’s session. The Nasdaq Composite was up 0.7% after rising as much as 2%.

The 10-year Treasury yield slid back to 1.325% after hovering around 1.36% earlier in the day. The benchmark rate fell to an all-time low on Tuesday. The earlier bounce in yields eased concerns slightly that the coronavirus would tip the globe into a recession.

Bond yields fell Wednesday after Bloomberg News cited a Food and Drug Administration official saying the coronavirus was on the cusp of a pandemic.

“Unfortunately, I think this is going to turn into a full-blown correction,” David Bianco, chief investment strategist for the Americas at DWS, told CNBC’s “Squawk Box.” “It’s a material impact to our earnings outlook and it’s probably going to be another year of flatish earnings growth.”

The news overnight was not positive in terms of containing the spread of the coronavirus. South Korea reported 169 new cases, bringing the country’s total to 1,146 infected. In Italy, infections now total 325 and cases are now being seen beyond the original epicenter in the north. China reported 406 new confirmed cases, and an additional 52 deaths.

President Donald Trump will hold a news conference at 6 p.m. to address the coronavirus.

“The sensitivity to what we don’t know has really been revealed,” said Jeff Kilburg, CEO of KKM Financial. “These last couple of sessions have really brought out to the surface the potential worst-case scenarios that the virus can spread from continent to continent.”

Stocks plunged for a second day on Tuesday, with the Dow tumbling 879 points, bringing its two-day losses to nearly 1,900 points. The S&P 500 wiped out a whopping $1.7 trillion in just two sessions. The equity benchmark nosedived 6.3% since Monday, suffering its biggest two-day drop since August 2015.

The sell-off accelerated after U.S. health officials warned that the coronavirus is “likely” to continue to spread throughout the U.S. and outlined what schools and businesses should do if the disease becomes an epidemic.

The Cboe Volatility Index, known as the market’s “fear gauge,” spiked more than 11% on Tuesday to close at 27.85, the highest close since Dec. 2018. The VIX, a measure of the 30-day implied volatility of U.S. stocks, crossed 30 at its session high on Tuesday as coronavirus fears rattled the markets.

On Wednesday, the VIX traded down 2.25 points,or 8%, at 25.65.

“Investors need to be prepared for the risk of a market correction,” Pramod Atluri, a portfolio manager at Capital Group, said in an email. “It should not come as a surprise that heightened global uncertainty – like news about the further spread of coronavirus and its impact on global supply chains – can hurt valuations which in some areas look priced to perfection.”

Jeffrey Gundlach, the billionaire investors and CEO of DoubleLine Capital, thinks the recent sell-off is more of a by-product of Sen. Bernie Sanders’ momentum in the Democratic primaries.

“The market is digesting a better than 50% chance of Bernie getting the nomination,” Gundlach said in an email to CNBC’s Scott Wapner. “The market goes down in a knee jerk way on the Bernie rise, but the market going down makes Bernie’s polls go up on his rejection of a market based economy.

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