Wall Street is on track for its worst quarterly performance since the financial crisis. Investors are fearful of the impact of the coronavirus pandemic as it wreaks havoc on U.S. businesses, causing sales to plummet and big and small companies alike to lay off millions of workers.
The S&P 500-stock index has lost 19.6% of its value in the first three months of this year, compared with its plunge of 22.6% in the fourth quarter of 2008, which marked the start of the Great Recession, according to Howard Silverblatt, senior index analyst for S&P Dow Jones Indices.
The Dow’s plunge during the first quarter — a fall of about 6,400 points, or a decline of 22% — is the worst since the fourth quarter of 1987, when the market suffered the “Black Monday” crash, Silverblatt added.
The first quarter of 2020 has been marked by record-making swings, with the Dow suffering its largest one-day loss on a percentage basis since the 1987 market crash as well as sharp gains unseen since partial recoveries during the 1930s after the Great Crash of 1929. The quarter’s plunge is all the more remarkable for its swiftness, given that both the Dow and S&P 500 reached record highs in mid-February.
But as the coronavirus began spreading across the U.S. in the last half of February and early March, states and cities across the U.S. have issued non-essential businesses to shutter in an effort to slow the disease’s spread and consumers have snapped shut their wallets.
“Social distancing, lockdowns and travel restrictions are leading to a sharp near-term drop in discretionary consumer spending, battering revenues in tourism, the arts, hospitality, retail and air travel,” Oxford Economics economists Sean Metcalfe and Stephen Foreman wrote in a Monday report.
On Tuesday, the Dow declined 155 points, or 0.7%, to 22,172 in early afternoon trading on the last day of the quarter. The broad-based S&P 500 declined 1.1%, while the tech-heavy Nasdaq composite slipped 0.5%.
Airlines and other travel-related companies have been among the most battered this quarter, with American Airlines losing 57% of its value since the year’s start. United Airlines’ shares have plunged 65%, while travel-booking company Expedia has halved in value.
“Free-fall”
With the coronavirus disease’s reach changing daily — and the count of the infected ratcheting up daily — economists are rapidly reassessing the impact of the pandemic. Just a month ago, many believed the impact would be minimal and short-lived. But many of those economists are now warning that growth could fall by double-digits, while the Federal Reserve of St. Louis estimates the nation’s jobless rate could hit a staggering 32% within months.
“Given the extreme nature of the shock, we anticipate the U.S. will experience the sharpest job losses and highest rise in unemployment since WWII,” Oxford Economics senior U.S. economist Lydia Boussour Senior wrote in a Tuesday report.
More than 20 million jobs could be lost in the next few weeks, she estimated, with most of the losses hitting low-paid workers and small businesses. “The U.S. labor market is in free-fall,” she added.
More volatility?
Investors are looking for a bottom, and hope it will happen sooner than in past market crashes due to the unusual swiftness and steepness of this market collapse, but the COVID-19 disease’s impact is causing “elevated near-term uncertainty,” LPL Financial chief investment officer Burt White and senior market strategist Ryan Detrick wrote to clients on Monday.
While the markets have priced in a recession, “we don’t yet have evidence of a peak in new COVID-19 cases in the United States,” they noted.
Still, the measures by the Federal Reserve to cut rates and its vow to buy as much government and investment-grade corporate debt as it deems necessary has helped to bolster investor confidence. Yet the market could be in for more volatility in coming weeks and months when companies begin reporting their first-quarter results, which will reflect the initial impact of the coronavirus pandemic, and their second-quarter forecasts amid the real-time wreckage of this coronavirus recession.
