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Coronavirus fears continue to grip stocks: March 18, 2020
By CNN Business
It was another ugly day for Wall Street.
US stocks erased the prior session's gains and closed lower.
The Dow closed below 20,000 total points for the first time since February 2017. It was down 6.3%, or 1,338 points, on the day. During the afternoon, the index fell so much that it erased all of the gains accumulated under the Trump administration -- though it closed slightly above that key level.
The S&P 500 is also edging closer to falling below its January 2017 level. The index finished down 5.2%.
The Nasdaq Composite closed down 4.7%.
Trading was briefly halted in the early afternoon after the S&P fell 7%, triggering the New York Stock Exchange's circuit breaker.
The economic fallout from the coronavirus pandemic could claim up to three million jobs by the summer, according to the Economic Policy Institute.
"At this point, a coronavirus recession is inevitable. But the policy response can determine how deep it is, how long it lasts, and how rapidly the economy bounces back from it," wrote EPI Director of Research Josh Bivens.
A policy response with enough fiscal stimulus could help curtail the number of jobs lost, Bivens said. Moderate stimulus isn't enough, he warned, and could still allow for three million lost jobs.
Employment losses in the coronavirus recession, "much more laser-targeted at low-wage, low-productivity, and low-hours jobs in service industries," he added.
"Given that workers in these sectors are likely to have very little savings to tide them over the economy’s downturn, the ripple effect from the first round of job losses are likely to be far greater," Bivens said.
Markets are going wild again on Wednesday and assets are selling off across the board.
"I think everyone needs to take a deep breath," said Nancy Tengler, chief investment strategist at Laffer Tengler Investments on the CNN Business' digital live show Markets Now.
Diversification works in times of trouble, Tengler tells her clients.
But now would also be a good time to increase 401(k) contributions and add to equity portfolios.
High quality companies that will continue to be in business, be solvent and pay dividends look cheap right now.
"These are incremental buys," and it wouldn't be wise to jump in with both feet, she added.
That way investors will be prepared for the recession "we're inevitably entering into," Tengler said.
That escalated quickly.
Crude oil was facing another horrific day, with a loss of 9% during Wednesday morning trading. But selling intensified throughout the session, with US oil finishing down a stunning 24%, settling at just $20.37 a barrel.
That means oil is now at the weakest level since February 2002.
Late Tuesday Goldman Sachs predicted another round of selling in the oil patch that would eventually drive crude from $27 a barrel to just $20. But even the Wall Street bank must be stunned at how quickly that nightmare scenario played out.
The breathtaking speed of the oil crash reflects the enormous pain being inflicted by the combination of shrinking demand and swelling supply. And it underscores just how much worse the economic situation has become.
The Federal Reserve slashed rates to zero on Sunday before Asian markets opened, but this hasn't helped calm financial markets.
Did the world's most powerful central bank make a mistake?
Not necessarily, said Danielle Dimartino Booth, CEO and chief strategist for Quill Intelligence on CNN Business' digital live show Markets Now.
Even though the timing may have been slightly surprising, investors had already priced in a Fed rate cut to zero. That might be why the market didn't react more positively to the central bank's action.
The drastic cut also highlighted that the economy might be in a much rougher state than previously thought.
"The service industry has come to a shrieking halt across America," said Dimartino Booth. That is worrying because consumer spending is the backbone of the US economy.
JCPenney (JCP) said Wednesday that it will close its stores until April 2. The company initially resisted closing all of its stores and had planned to reduce hours.
In recent days, its department store rivals Nordstrom (JWN) and Macy's (M) said they will temporarily close stores. Kohl's (KSS) is the only major department store chain still operating stores. It is shortening hours at its locations.
"With the effects of the outbreak being felt more each day, our primary concern and area of focus is and has been on the health and safety of our associates, our customers, and our communities,” said Jill Soltau, chief executive officer of JCPenney. “We know this is a critical, unprecedented time and our thoughts are with those who have been impacted.”
Just a month ago, the Dow looked destined to break through the 30,000 level for the first time ever.
Investors were confident (overly so, in retrospect) that the coronavirus outbreak in China would have just a fleeting impact on the American economy. Reflecting that optimism, the Dow hit a record closing high of 29,551.42 on February 12.
The world has completely changed since then. The coronavirus outbreak is now a pandemic. And it's shut down large parts of the world economy, including in the United States. Investors are bracing for a recession, perhaps a severe one.
Now, the Dow is struggling just to hold the 19,000 level. It plunged to as low as 19,056 on Wednesday following another 15-minute trading halt. That means the Dow has lost more than 10,400 points, or 35%, from its record high.
As the coronavirus crisis keeps markets in a chokehold, liquidity has gotten tight.
US Treasury bonds are normally the most liquid asset in the world, meaning they can be converted into cash so quickly that they are cash-like. Under normal circumstances, Treasuries are "the gold standard for liquidity," said John Bellows, portfolio manager at Western Asset Management.
But things look quite a bit different in the new coronavirus normal: investors have now grown concerned about the liquidity in bond markets.
"The demand for cash is causing investors to sell their Treasuries," Bellows said.
In line with that, the 10-year Treasury bond headed lower on Wednesday, with its yield moving back above 1.1%. Bond prices and yields move in opposite directions to each other.
The sold Treasuries then pile up on the balance sheets of broker dealers, which is what is draining the liquidity from the market, Bellows said.
This is where the Federal Reserve's bond purchases to unclog the financial system comes in.
"The risks are to the upside here. The Fed can and will do more as the need for cash increases," Bellows added.