Stocks drop as coronavirus fears lead investors to dash for cash

March 18, 2020 4:43 PM PT

NEW YORK — Stocks on Wall Street tumbled more than 5% on Wednesday, and the Dow Jones industrial average erased virtually all the gains it had made since President Trump’s 2017 inauguration. Even prices for investments seen as safe during downturns fell as the coronavirus pandemic chokes the economy and investors rush to raise cash.

Markets have been incredibly volatile for weeks as Wall Street and the White House acknowledge the rising likelihood that the pandemic will cause a recession. The typical day this month has seen the stock market swing up or down by 4.9%. Over the last decade, the typical daily move was just 0.4%.

Wednesday’s tumble came the day after the Dow surged more than 5% after Trump promised massive aid to the economy, but the number of infections keeps climbing, and the Dow erased all but 0.4% of its gains since Trump’s inauguration. The S&P 500, which dictates how 401(k) accounts perform much more than the Dow, is down 29.2% from its record set last month, though it’s still up 12.1% since election day 2016.

The S&P 500’s Wednesday slide was so sharp that it triggered a 15-minute automatic halt to trading. The index ended the day down 5.2%; earlier in the day, it was down as much as 9.8%.

Large swaths of the economy are retrenching while much of society comes to a halt in an attempt to slow the spread of the coronavirus.

Delta Air Lines said Wednesday it’s parking at least half its planes because of a huge drop in travel. Detroit’s big three automakers have agreed to close their North American factories to protect workers. And at the New York Stock Exchange, all trading will go electronic next week; the trading floor will be shut temporarily.

Investors have clamored for Congress, the Federal Reserve and other authorities around the world to support the economy until it can begin to reopen.

They got a big shot of that Tuesday, when the Trump administration briefed lawmakers on a program that could surpass $1 trillion and the Fed announced its latest moves to support markets.

But the worldwide number of known infections has topped 200,000, which creates more uncertainty about how badly the economy is getting hit, how much profit companies will make and how many companies will experience a cash crunch severe enough to drive them into bankruptcy.

“It’s a very tough situation,” Trump said at a news conference, during which losses for stocks accelerated. “You have to do things. You have to close parts of an economy that six weeks ago were the best they’ve ever been…. And then one day you have to close it down in order to defeat this enemy.”

“The volatility [in the markets] is going to be here to stay,” said Brian Nick, chief investment strategist at Nuveen. “It’s about the virus and not the economic response.”

Wednesday’s selling swept markets around the world. Benchmark U.S. oil fell 24% and dropped below $21 a barrel for the first time since 2002. European stock indexes lost more than 4% following broad losses in Asia. Even prices for longer-term U.S. Treasury notes, which are seen as some of the safest possible investments, fell as investors sold what they could to raise cash. Gold also fell.

“They’re just saying, ‘I may take some losses here, but if we have cash we can deploy it when we know more,’” said J.J. Kinahan, chief strategist with TD Ameritrade. “Until we really know where things are at, you may see people who just want to have as much cash as possible.”

The bond market is also operating under strain, and it hasn’t been this difficult for buyers to find sellers at reasonable prices since the financial crisis of 2008, said Gene Tannuzzo, deputy global head of fixed income at Columbia Threadneedle Investments.

Investors are selling their highest-quality bonds to raise cash, thinking they will be the easiest to sell and will hold up the best. That’s paradoxically undercutting their prices further.

Also exacerbating moves: many traders are making these trades not from their office.

“I’m calling the Citigroup dealer, who’s on his home Wi-Fi with his kid in the living room,” Tannuzzo said. “That causes gaps” in pricing.

For most people, the coronavirus causes only mild or moderate symptoms, such as fever and cough, and those with mild illness recover in about two weeks. Severe illness including pneumonia can occur, especially in the elderly and people with existing health problems, and recovery could take six weeks in such cases. Some people die.

“These are truly unprecedented events with no adequate historical example with which to precisely anchor our forecast,” Deutsche Bank economists wrote in a report Wednesday.

With all the uncertainty and early evidence that China’s economy was hit much harder by the virus than earlier thought, they now see “a severe global recession occurring in the first half of 2020.”

But they also are still forecasting a relatively quick rebound, with activity beginning to bounce back in the second half of this year, in part because of all the aid promised by central banks and governments.

The Dow sank 1,338.46 points, or 6.3%, to 19,898.92 on Wednesday. It’s the eighth straight day the Dow has moved more than 1,000 points.

All the uncertainty has pushed many people toward safety. Last month, investors pulled $17.5 billion out of stock mutual funds and exchange-traded funds, even though stocks set all-time highs in the middle of the month. Money-market funds, meanwhile, drew $25.5 billion, according to Morningstar.

That was all before the market’s sell-off accelerated this month, which Goldman Sachs strategists are describing as “March Sadness.”