The coronavirus-induced sell-off reached a new low on Wednesday as Wall Street grappled with the rapid spread of the virus as well as uncertainty around a fiscal response to curb slower economic growth from the outbreak.
The Dow Jones Industrial Average traded 1,466 points lower, or 5.9%, and was more than 20% below its record high set earlier last month. A 20% decline is considered a bear market on Wall Street. However, most investors don’t recognize it officially until the index does it on a closing basis. The Dow was on pace to do that Wednesday, whereas the S&P 500 is just below that closing threshold.
The S&P 500 is more than 19% from its closing record and traded 5.1% lower on the day. The Nasdaq Composite fell 5% and was also 19% below its all-time high.
“We can see the panic in the equity market,” said Jerry Braakman, chief investment officer of First American Trust. “The big question for most people is, are we at the bottom yet? I think we’re only about halfway there.”
The World Health Organization declared Wednesday the outbreak a global pandemic. The number of coronavirus cases around the world totaled more than 100,000, according to data from Johns Hopkins University. In the U.S. alone, more than 1,000 cases have been confirmed. This increase in cases added to fears of a global economic slowdown and have increased calls for government intervention.
President Donald Trump suggested Tuesday a 0% payroll tax rate that could last until the end of the year. However, the timing of such policies being implemented remains uncertain. Sen. Chuck Grassley, who heads the Senate Finance Committee, said such a tax cut needed to be examined.
“Markets seem disappointed that the White House did not release details of its fiscal response to the coronavirus,” said Brian Gardner, a Washington policy analyst at KBW. “We are still in early days and policymakers are continuing to grapple with different options and negotiate between the two parties and between Congress and the administration.”
Central banks have also acted to curb slower economic growth. The Bank of England on Wednesday cut its benchmark rate by 50 basis points to 0.25%. The Federal Reserve also increased the amount of money it is providing to banks through overnight repo lending to $175 billion.
The uncertainty around fiscal stimulus, coupled with a reduction in travel demand and rising coronavirus cases, pressured airline and cruise line stocks. American, Delta, United and JetBlue all fell at least 6.5%. Norwegian Cruise Line and Carnival fell 20.4% and 12.4%, respectively.
“We need to see meaningful support for economic activity and credit backstops especially for small businesses, not a targeted approach executed only by the executive branch,” Joe Kalish, chief global macro strategist at Ned Davis Research, said in a note. “We will likely need congressional involvement. This is a potential solvency problem.”
Wednesday’s moves came after the major averages posted sharp gains in the previous session. The Dow rallied more than 1,100 points while the S&P 500 had its best one-day performance since Dec. 26, 2018.
“Stocks posted impressive headline gains, but more strength needs to be seen beneath the surface to have confidence that the downside momentum in stocks has been broken,” Willie Delwiche, investment strategist at Baird, said in a note. “The weight of the evidence continues to argue for caution in the near term and we recommend that investors remain patient in the face of ongoing market volatility.”
The recent stock market volatility is unlike anything investors experienced in 2019. In 2019, the major averages all averaged daily moves of less than 1%. Over the past 12 trading days, the average price change has been well above 3%.
David Kostin, Goldman’s top U.S. equity strategist, thinks the current bull market — which is the longest on record — will end soon. “Investors have cut their equity positions in recent weeks, but not to levels reached at the trough of other major corrections this cycle.”
CNBC’s Silvia Amaro and Peter Schacknow contributed to this report.
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