U.S. stocks slumped Friday as the coronavirus epidemic emanating from China raised new concerns about travel, trade and expectations for global economic growth.
A busy week for U.S. corporate earnings reports also was preoccupying investors. Shares of Amazon.com Inc. AMZN, +8.45% jumped after delivering strong quarterly results following Thursday’s close.
What are major indexes doing?
The Dow Jones Industrial Average DJIA, -1.79% was down 577 points, or 2%, at 28,283. The S&P 500 SPX, -1.47% shed 56 points, or 1.7%, at 3,227. The Nasdaq Composite COMP, -1.18% retreated 136 points, or 1.5%, to 9,162.
Stocks staged a big turnaround on Thursday, erasing early losses to finish in positive territory. The Dow ended the day up 124.99 points, or 0.4%, at 28,859.44. The S&P 500 rose 10.26 points, or 0.3%, to finish at 3,283.66, while the Nasdaq gained 23.77 points, or 0.3%, to close at 9,298.93.
What’s driving the market?
Delta DAL, -2.13% and American Airlines AAL, -2.87% halted flights to China after the U.S. government warned travelers to avoid the nation even though the World Health Organization refrained from recommending curbs on travel or trade when declaring a global health emergency on Thursday.
“It’s certainly the virus concerns. What we are seeing is an unknown, and whenever there is an unknown, the market is vulnerable to pullbacks, especially when you have a full valuation market,” Joe Saluzzi, co-head of equity trading at Themis Trading, told MarketWatch.
Saluzzi says equity investors also could be “taking cues from the bond market.” Low long-dated Treasury yields paint a dour forecast for global economic growth, and suggest a potential spillover into the U.S. economy, which so far has managed to shrug off international headwinds.
The 10-year Treasury note yield TMUBMUSD10Y, -3.30% slipped to 1.533% on Friday and is down more than 14 basis points this week. The drop of the benchmark bond’s yield below the 3-month Treasury bill rate TMUBMUSD03M, -0.67%, inverting the so-called yield curve, has also deepened worries that the U.S. is exposed to a global growth shock.
Federal Reserve Vice Chairman Richard Clarida said Friday he wasn’t worried about that the latest yield curve inversion signaled pessimism about the U.S. economy, rather he said it pointed to global unease about the coronavirus, in a Bloomberg Television interview.
“I definitely think investors should hold tight,” Chris Gaffney, president at EverBank World Markets told MarketWatch, about urges to buy the dip. “There is certainly some opportunity in some big names as they trade off,” he said, but cautioned that volatility is likely to remain high until there is a clearer sign of containment of the virus. “It sounds like we are marching in that direction.”
Which companies are in focus?
- Shares of Amazon.com Inc. rose 8.4% after the e-commerce juggernaut reported renewed earnings growth in the holiday quarter.
- Dow component Caterpillar Inc. CAT, -2.88% reported a fourth-quarter profit that came in well above expectations, but sales fell short and the construction- and mining-equipment maker offered a downbeat outlook. Shares fell 2.6%.
- Shares of Dow component Chevron CVX, -4.16% fell 4.3% after revenues fell short of Wall Street estimates. While, oil giant Exxon Mobil Corp’s XOM, -4.11% stock, also a member of the Dow, was down 4.2% after its fourth-quarter profit and revenues came below analyst forecasts.
- International Business Machines Corp. IBM, +4.79% late Thursday said Chief Executive Ginni Rometty will retire at the end of the year and would be replaced by Arvind Krishna, currently IBM senior vice president for cloud and cognitive software. Shares were up 4.4%
- Honeywell International Inc. HON, -2.83% on Friday reported consensus-beating fourth quarter profit while sales fell a bit shy. Shares of the aerospace and industrial company’s shares were down 3.6%.
What’s on the economic calendar?
In economic data, the eurozone showed the region grew a seasonally adjusted 0.1% in the fourth quarter, with gross domestic product expanding by 1% year over year. Economists were looking for 0.2% quarterly growth pace.
Meanwhile, U.S. consumer spending rose modestly in December to cap off a decent holiday shopping season, but the increase in outlays in 2019 was the smallest in three years, the government reported. Fourth-quarter employment costs in the U.S. rose 0.7% in the fourth quarter, but the increase in wage and benefits for the full year of 2019 slowed to a 2.7% pace.
The January Chicago purchasing manager index slumped to 42.9, from the previous month’s 48.9, an indication of the lingering weakness in manufacturing. This month’s consumer sentiment index reading rose to 99.8, slightly above analysts’ consensus forecast of 99.1.
How are other assets trading?
In commodity markets, West Texas Intermediate crude for March delivery CLH20, -1.84% on the New York Mercantile Exchange fell $1.03 cents, or almost 2%, to trade at $51.10 a barrel. Gold for April delivery GCJ20, +0.03% on Comex was down 20 cents at $1,588.80 an ounce.
The ICE U.S. Dollar Index DXY, -0.40%, which tracks the dollar’s strength against a basket of rival currencies, edged 0.4% lower.
European stocks saw their biggest monthly decline since August. The Stoxx Europe 600 index SXXP, -1.07% lost 1.1% at 410.71.
Japan’s Nikkei NIK, +0.99% rose 1% to 23,205, shedding 1.9% for the month, the Hong Kong’s Hang Seng Index lost 0.5% at 26,312, putting it 6.7% lower for January, according to Dow Jones Market Data. China’s financial markets re-open Monday after the extended Lunar New Year holiday.