Stocks tumbled on Monday as investors braced for the economic fallout from the spreading coronavirus, while a shocking all-out oil price war added to the anxiety.
The Dow Jones Industrial Average tanked more than 1,800 points at the open. The S&P 500 dropped 6.8%. The sharp declines followed a roller-coaster week that saw the S&P 500 swing up or down more than 2.5% for four days straight.
The massive sell-off could trigger key market circuit breakers during regular trading hours. If the S&P 500 drops 7%, trading will pause for 15 minutes.
While Monday’s drop is poised to be significant, it still wouldn’t crack the 20 worst days in the S&P 500.
Investors continued to seek safer assets amid additional fears that the coronavirus will disrupt global supply chains and tip the economy into a recession. The yield on the benchmark 10-year Treasury note dropped below 0.5% for the first time ever, while the 30-year rate breached 1%.
Saudi Arabia on Saturday slashed official crude selling prices for April, in a sudden U-turn from previous attempts to support the oil market as the coronavirus hammers global demand. The move came after OPEC talks collapsed Friday, prompting some strategists to see oil prices crater to $20 this year.
“Crude has become a bigger problem for markets than the coronavirus,” Adam Crisafulli, founder of Vital Knowledge, said Sunday. “It will be virtually impossible for the [S&P 500] to sustainably bounce if Brent continues to crater,” he added.
International benchmark Brent crude futures plummeted 29.07% to $32.11 per barrel after dropping 30% earlier. U.S. West Texas Intermediate crude futures dropped 30.98% to $28.49 per barrel, on track for its worst day since 1991. The Energy Select Sector SPDR Fund (XLE), which tracks the energy sector, tumbled 15% in Monday’s premarket trading.
Bank stocks are getting smashed as lower yields put pressure on their margins, while an oil crash could cause energy companies to default on their obligations. JPMorgan plunged 9.3% in premarket trading.
Investors have already been on edge about the coronavirus outbreak that caused major stock averages to tumble into correction territory. As of Sunday, global cases of the infection have climbed to more than 109,000 with at least 3,801 deaths around the world. The situation is also worsening in the U.S. with New York, California and Oregon all declaring a state of emergency.
“The idea that lower gasoline prices is going to put more cash in workers’ pockets and give consumer spending and the economy a boost doesn’t seem to cushion the blow for stock market investors,” Chris Rupkey, MUFG Union Bank’s chief financial economist, said in a note Sunday. “They want out. Big time. The sky is falling. Get out, get out while you can. Wall Street’s woes have to eventually hit Main Street’s economy hard.”
Gold, another safe-haven asset, crossed $1,700 an ounce, hitting its highest level since Dec. 2012. Meanwhile, copper prices hit a more than three-year low of $2.46. Copper is seen as a barometer of broad economic demand given its applications in electrical equipment and manufacturing.
The Federal Reserve announced an emergency rate cut last week to combat the economic impact from the virus, its first such move since the financial crisis. President Donald Trump on Friday signed a sweeping spending bill of an $8.3 billion package to aid medical research.
The New York Fed said Monday it will increase the amount of money it is offering to banks for their short-term funding needs. To make sure the funding, or repo, markets are working properly, the central bank said it will up the amount it offers in overnight operations from $100 billion to $150 billion through Thursday.
Traders expect the central bank to slash rates by three-quarters of a percentage point at its upcoming March meeting. Chances for a full percentage point cut this month were at 29.2%, according to the CME FedWatch tracker.
The S&P 500 has fallen 8% this year after suffering its worst week since the financial crisis at the end of February. The benchmark is down more than 12% from its recent peak.
The iShares High Yield Corporate Bond ETF (HYG) fell 4.5% in premarket, on concerns that a oil price crash will cause many small energy companies to default, hitting the high yield credit market that they’ve become so a large part of.
– CNBC’s Pippa Stevens and Nate Rattner contributed to this report.
Subscribe to CNBC PRO for exclusive insights and analysis, and live business day programming from around the world.
