Stocks fell sharply on Friday, wiping out the Dow Jones Industrial Average‘s gain for January, as investors grew increasingly worried about the potential economic impact of China’s fast-spreading coronavirus.
The Dow dropped 565 points, or nearly 2%, after Delta and American suspended all flights between China and the U.S. United Airlines announced similar measures later in the day. The S&P 500 was down 1.8% while the Nasdaq Composite dipped 1.5%.
The major averages hit their lows of the day as the New York Daily News reported New York City’s first coronavirus case. CNBC could not confirm the report. Stocks bounced after the Daily News updated the report to show the case was not confirmed.
Stocks dropped even as Amazon surged 8.3% to a $1 trillion market value, joining an elite club shared only by Apple, Microsoft and Alphabet.
Ilya Feygin, senior strategist at WallachBeth Capital, noted traders were unwinding equity positions added on Thursday and in overnight futures trading after the World Health Organization didn’t recommend a travel restriction on China while sentiment got a boost from Amazon’s earnings report.
But now “there’s fear going into the weekend,” Feygin added. “The theme coming into this year was the Fed and Trump are going to bail us out of any problems, but the virus is something neither one can do anything about. That’s a reason to become more fearful.”
China’s National Health Commission confirmed on Friday that there have been 9,692 confirmed cases of the coronavirus, with 213 deaths.
The WHO recognized the deadly pneumonia-like virus as a global health emergency on Thursday, citing concern that the outbreak continues to spread to other countries with weaker health systems. WHO’s designation was made to help the United Nations health agency mobilize financial and political support to contain the outbreak.
The virus, which was first discovered in the Chinese city of Wuhan, has now spread to at least 18 other countries and has dampened sentiment over global economic growth.
“The outbreak of the coronavirus has added another headwind to the near-term outlook for stocks,” said Peter Berezin, chief global strategist at BCA Research, said in a note. “Viruses often become less lethal as they mutate because a virus that kills its host is also a virus that kills itself. Unfortunately, in a world of mass travel, a virus can spread across the globe before it has time to lose potency.”
Police officers in plainclothes raid a medical supply shop for allegedly hoarding and overpricing face masks, as public fear over China’s Wuhan Coronavirus grows, on January 31, 2020 in Manila, Philippines.
Ezra Acayan | Getty Images
Las Vegas Sands and Wynn Resorts, two stocks that are coronavirus proxies given their gaming exposure in China, fell more than 1.5% each. Airline stocks such as American and United dropped more than 2.5% each while Delta slid 2%. Travel stocks also got hit as the Trump administration mulls over tighter travel restrictions to China.
In corporate news, Caterpillar shares fell 1.6% after the industrial giant’s CEO warned about “global economic uncertainty” in the company’s latest quarterly earnings report. Caterpillar also issued disappointing earnings guidance for 2020. Those losses were mitigated, however, by a surge in Amazon shares.
Amazon posted a quarterly profit and revenue that easily beat analyst expectations. Amazon Web Services, the company’s cloud business, saw stronger-than-expected revenues.
Investors are nearly halfway through the corporate earnings season. More than 70% of the 226 S&P 500 companies that have reported have beaten analyst earnings expectations, FactSet data shows.
Volatile January
The major averages saw an uptick in volatility this month as investors grappled with rising tensions between Iran and the U.S., trade worries with China and the recent coronavirus scare.
The S&P 500 was on pace to close lower in January, snapping a four-month winning streak. The Dow was also headed for its first monthly loss since August. The Nasdaq is up 2.2% and is on track for a five-month winning streak.
The Cboe Volatility Index (VIX), widely considered to be the best fear gauge in the market, rose to above 19 this month from 13.78, a gain of more than 37%.
Stocks could face some seasonal headwinds next month. February has not been the market’s best month historically. Data from The Stock Trader’s Almanac shows the S&P 500 averages a gain of just 0.1%. Investors will also face a number of obstacles in the new month, including worries over how the U.S. presidential election shakes out. Coronavirus fears could also persist in February.
“That’s going to hurt China,” said Tom Martin, senior portfolio manager at GLOBALT. “For an economy that is increasingly trying to transition to the consumer, it’s definitely a headwind.”
“When you start seeing real actions on the part of multinational companies, as well as people trying to put a number on it, it’s no longer something that is not going to have an impact at all,” Martin said.
—CNBC’s Sam Meredith contributed to this report.
