U.S. Stocks Sink in Worst Day Since 1987's Black Monday

Photo: Bloomberg

(Bloomberg) — In a week that brought the wildest market swings since the financial crisis, Thursday hammered investors with something crazier — a 10% drop in the Dow, the end of the longest bull market on record and the biggest sell-off since 1987’s Black Monday.

At the end of the day, the S&P 500 smoldered 27% below records set barely three weeks ago and wiped out all its gains since the end of 2018. The news was even worse overseas: Europe’s benchmark index suffered its worst day in history. Brazil’s Ibovespa tumbled as much as 20%, extending this year’s loss to almost 50% in dollar terms. Canada’s main gauge was off more than 12%, its worst day since 1940.

President Donald Trump finally offered some attempt at fiscal stimulus, but the measures fell flat. The European Central Bank took a stab by easing capital constraints and boosting liquidity, and losses only deepened. Not even an unprecedented plan for $5 trillion in bond-buying from the Federal Reserve could mollify investors rattled by the growing likelihood that the coronavirus will plunge the global economy into recession.

Ten-year Treasury yields erased declines and inched higher as policy makers’ liquidity pledge recalled the quantitative easing used during the financial crisis. Oil and precious metals fell, with palladium sinking more than 20%.

Thursday marked the greatest manifestation yet of how the one-two punch of the coronavirus and an oil-price war are destroying global growth prospects and fueling jitters around the world. Now investors are trying to guess at the effectiveness of policy makers’ efforts to limit economic damage, with Trump’s travel ban and tepid fiscal measures failing to impress most observers. Spirits were further damped by new bans on public gatherings in the U.S. and professional sports leagues’ moves to suspend operations.

“Markets likely need more. More innovation from central banks, more targeted help for the most vulnerable parts of the economy — and action from fiscal authorities to stop this transitory shock from developing into a more prolonged insolvency crisis,” said Seema Shah, a global investment strategist for Principal Global Investors. “Emotion is now driving markets.”

On another bruising day across markets:

-- The S&P 500, Nasdaq Composite and Nasdaq 100 indexes are all in a bear market now, with losses from February closing records extending well past 20%.

The slump triggered the second 15-minute trading halt this week shortly after the U.S. open.

-- The MSCI All-Country World Index extended losses to enter bear-market territory.

-- The cost of insuring debt issued by Europe’s investment grade companies surged to the highest since 2016.

-- Japanese stocks closed more than 4% lower even after another liquidity pledge from the country’s central bank. Australian shares sunk deeper into a bear market despite a stimulus plan there.

-- Oil extended losses past 5%. Bitcoin took a dive. Gold fell below $1,600 an ounce.

More bad news about the impact of the coronavirus emerged throughout the day. The leading U.S. infectious-disease official said the testing system in the country is “a failing.” The European Union warned the sickness threatens to exceed health-care capacity across the region “in a few weeks or even days.” The National Hockey League followed the National Basketball Association’s lead and suspended its season, while Major League Baseball said opening day would be delayed.

“We need to see what is effectively a ‘declaration of war’ against the virus and full support to offset the economic damage that war will cost,” said Peter Tchir, head of macro strategy at Academy Securities LLC. “Whatever has gone on this week, it’s not a liquidity crunch.”

Meanwhile, signs that companies in the hardest-hit industries were drawing down credit lines to battle the effects of the virus on their businesses added to anxiety.

“The risks have definitely risen,” said Chris Gaffney, president of world markets at TIAA. “The question is how long will this last and I don’t think anybody can predict that at this point.”

These are the main moves in markets:

Stocks

-- The S&P 500 Index declined 9.5% at the close of trading in New York; the Dow Jones Industrial Average lost 10%.

-- The Stoxx Europe 600 Index fell 11%.

-- The MSCI Asia Pacific Index dipped 5.4%.

-- The MSCI Emerging Market Index sank 6.6%.

Currencies

-- The Bloomberg Dollar Spot Index gained 1.1%.

-- The euro weakened 0.6% $1.1204.

-- The Japanese yen fell 0.5% to 105.1 per dollar.

Bonds

-- The yield on 10-year Treasuries rose one basis point to 0.88%.