U.S. stocks turned lower Thursday, one day after the S&P 500 index and the Nasdaq booked all-time closing highs.
Although investors had been heartened by daily reports of a slowing rate of the spread of COVID-19, the infectious disease that emerged in Wuhan, China, late last year, deaths and cases of the disease outside of China may be sparking some anxiety, analysts said. Strategists, however, struggled to pin market action on a single catalyst.
How are benchmarks performing?
The Dow Jones Industrial Average DJIA, -0.54% traded near 29,080, down 266 points, or 0.9%, after falling as much as 388 points at its session low. The S&P 500 SPX, -0.56% declined about 32 points to trade 0.9% lower, near 3,354. The Nasdaq Composite COMP, -0.97% was off 141 points, or 1.4%, near 9,674.
The small-cap Russell 2000 index RUT, -0.34%, traded near 1,682, or 0.6% lower. The index has fallen 1.1% in the month of February.
What’s driving the market?
Investors were skittish about pushing stocks to new heights, even amid hope that the Federal Reserve and other global central banks will use easy-money policies to combat the hit to economic growth from China’s coronavirus.
“I would highlight that given this move up we’ve had recently, it’s pretty normal to see things roll over,” said Sahak Manuelian, managing director of equity trading at Wedbush Securities, in an interview. “But this move down certainly catches some people off guard.”
Major U.S. equity benchmarks briefly turned positive in early trade Thursday amid a burst of corporate deal activity that improved sentiment.
Morgan Stanley MS, -3.60% announced it would buy E-Trade Financial Corp. ETFC, +24.00% in an all-stock deal valued at $13 billion. Shares of E-Trade surged 25%, while those for Morgan Stanley fell about 3.4%.
See: Morgan Stanley’s $13 billion E-Trade deal raises questions about ‘too big to fail’
U.S. corporate earnings for the fourth quarter of last year also have provided some support for valuations.
“We now have Q4 results from 411 S&P 500 members that combined account for 88.6% of the index’s total market capitalization. Total earnings for these 411 index members are up +1.1% from the same period last year on +4.6% higher revenues,” wrote Sheraz Mian, research director at Zacks, in a note.
Even so, Thursday’s action comes as a reminder of how quickly sentiment can shift to pressure stocks lower.
“We’ve had a six-month uptrend,” Joe Saluzzi, partner, co-head of equity trading at Themis Trading told MarketWatch. “Certainly this was a warning shot across the bow for everyone to wake up a little. You can sell off in the middle of the day.”
Meanwhile, deaths outside China from the viral outbreak remain a worry. A report from South Korea’s Yonhap News Agency said COVID-19 had claimed its first life, and the mayor of the South Korean city of Daegu urged its 2.5 million people to refrain from going outside, according to the Associated Press. Reports indicate that cases of COVID-19 in South Korea have more than doubled to 104 in a day, with 35 additional cases cropping up in Daegu on Thursday.
Shares of Microsoft Corp. MSFT, -1.76%, Apple Inc. AAPL, -0.88% Intel Corp. INTC, -2.85% and other technology companies with exposure to China and South Korean manufacturing led the losses Thursday. The U.S. dollar DXY, +0.13% also climbed sharply for a third session against major currencies, pressuring exporters.
Read: Can stocks keep soaring as the U.S. dollar surges? What investors need to know
China’s central bank cut its benchmark lending rate on Thursday, as widely expected, in a move to lower financing costs for businesses. The epidemic has disrupted global supply chains and factory activity in China. The benchmark one-year loan prime rate was cut by 10 basis points, and the five-year loan prime rate by 5 basis points. The coronavirus has infected nearly 76,000, and claimed more than 2,100 lives.
Goldman Sachs’ chief global equity strategist Peter Oppenheimer said that the chances for a correction or pullback in U.S. stocks were rising due to the spread of the contagion out of Asia. “In the nearer term…we believe the greater risk is that the impact of the coronavirus on earnings may well be underestimated in current stock prices, suggesting that the risks of a correction are high,” the strategist said.
A pair of early-morning reports showed resilience in the U.S. economy, though. The number of Americans filing for first-time unemployment benefits ticked up marginally in the most recent week but still hovered near multiyear lows. A gauge of manufacturing activity in the mid-Atlantic area surged to a two-year high in February. The new orders component of the Philadelphia Fed’s survey was at its highest since May 2018.
Read: Here’s the segment of the economy that may benefit from fears of coronavirus, analysts say
Which stocks are in focus?
Shares of L Brands Inc. LB, +1.13% were slightly higher, reversing early losses, after announcing it would sella 55% stake in Victoria’s Secret to private-equity firm Sycamore Partners for around $525 million.
Virgin Galactic Holdings Inc. SPCE, -0.45% shares fell nearly 8% after rocketed higher in early trade that would have extended an 8-day win streak.
Shares of Zillow Group Inc. Z, +18.89% jumped nearly 19% after a set of upgrades following a fourth-quarter earnings call late Wednesday.
Procter & Gamble Co. PG, +0.51% shares traded higher even after the company warned that the coronavirus would have a material impact on winter earnings.
ViacomCBS Inc. VIAC, -17.16% shares tumbled 16.7% after the company’s fourth-quarter results missed analyst expectations.
Six Flags Entertainment Corp. SIX, -18.10% shares lost about 18% after the theme-park operator cut its dividend.
How are other assets performing?
The price of a barrel of West Texas Intermediate crude for March delivery CLH20, +1.05% rose 0.7% to $53.92 a barrel on the New York Mercantile Exchange.
Gold for April delivery GCJ20, +0.51% was on pace for a sixth straight gain, rising 0.7% to trade at $1,622.70 an ounce, extending its climb above the psychologically important level at $1,600.
The U.S. dollar DXY, +0.13% was 0.1% higher against a basket of rival currencies at 99.77.
The benchmark U.S. 10-year Treasury note TMUBMUSD10Y, -2.34% was down 5.5 basis points at 1.514% while the yield on the 30-year T-bond fell closer to an all-time low. Bond yields fall when prices rise.
In Europe, the Stoxx Europe 600 SXXP, -0.86% traded 0.9% lower, while the FTSE 100 UKX, -0.27% lost 0.3%.
Trade was mixed in Asia overnight. The China CSI 300 000300, +2.30% rose 2.3%, Hong Kong’s Hang Seng Index HSI, -0.17% fell 0.2%, while the Shanghai Composite SHCOMP, +1.84% advanced 1.8%. Japan’s Nikkei NIK, +0.34% advanced 0.3%, while South Korea’s Kospi 180721, -0.67% sank 0.7%.
Additional reporting by Andrea Riquier
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