Stocks continued their rout on Tuesday as diving bond yields raised more concern that the global economy is slowing significantly because of the spreading coronavirus. The 10-year Treasury yield hit a record low as the Dow Jones Industrial Average added to Monday’s 1,000-point drop.
The Dow traded 306 points lower, or 1.1%, after briefly falling more than 400 points. The S&P 500 slid 1.1% while the Nasdaq Composite fell 1.1%. The Dow gained at the open Tuesday before the selling returned. At one point the average was up more than 180 points. Monday’s session was the market’s worst in two years.
These declines put the Dow and S&P 500 more than 6% below the record highs reached earlier this month. The Nasdaq is trading 7.5% below its all-time high from Feb. 19.
“I understand the inclination to buy on the dip. I understand that the path of least resistance in this market is to bounce up … but I stress, this is different,” Mohamed El-Erian, chief economic advisor at Allianz and former Pimco CEO, told CNBC’s “Squawk Box.”
Traders kept an eye on the bond market, which pointed to slower economic growth around the world. The 10-year Treasury yield traded at 1.32%, hitting an all-time low. The 30-year U.S. bond yield also reached a record low. Bond prices move inversely to yields.
“With global investors chasing after U.S. assets, specifically fixed income, there’s significant pressure on rates to stay low,” said Andrew Thrasher, founder of Thrasher Analytics. “This doesn’t mean we won’t see some counter-trend moves in the 10yr, but the trend is well defined to the downside right now which is not one I’m overly eager to fight.”
The drop in yields pushed bank stocks lower. Bank of America fell more than 2% while JPMorgan Chase traded 1.5% lower. Citigroup and Wells Fargo both declined by about 1%. Lower rates could hit bank profit margins.
The moves on Tuesday came after investors fled stocks on Monday as a surge in coronavirus cases outside of China intensified fears of a prolonged global economic slowdown.
The Dow suffered its biggest point and percentage drop since February 2018 on Monday. The S&P 500 plunged 3.3%, also the worst drop in two years. With Monday’s declines, the S&P 500 and the Dow both wiped out all of their 2020 gains.
South Korea raised its coronavirus alert to the “highest level,” with the latest spike in numbers bringing the total infected to more than 800. Meanwhile, Italy has been the worst affected country outside of Asia, with more than 130 reported cases and seven deaths. Iran also confirmed 12 deaths.
The number of confirmed coronavirus cases in the U.S. remains small relative to other countries, but a strategist at Jefferies said that number could grow and further dampen investor sentiment.
“We increasingly find it hard to believe that USA cases are as low as reported, and believe that given the flow of Chinese, Korean and Iranian nationals into North America, a large USA community-based outbreak is increasingly likely,” wrote Simon Powell, equity strategist with Jefferies. “If not managed correctly, this could significantly rattle markets.”
Mastercard warned about the potential impact the coronavirus will have on 2020 results, sending their shares down more than 3%.
“The huge jump over the weekend to various other countries has many reassessing 2020 growth estimates,” said Ryan Detrick, senior market strategist for LPL Financial. “We could see quickly decreasing earnings and growth outlooks.”
Analysts have already begun cutting their earnings estimates for the first quarter. Data compiled by The Earnings Scout showed analysts expect S&P 500 earnings to contract by about 0.1% this quarter. Earlier this month, analysts expected growth of roughly 2.5%, the data showed.
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