The Dow Jones Industrial Average soared nearly 1,300 points Monday as stocks roared back from a seven-day nosedive on hopes that central banks will take action to shield the global economy from the effects of the coronavirus outbreak.
The huge gains clawed back some of the ground lost in a massive sell-off that gave stocks their worst week since the financial crisis of 2008.
The Dow jumped 1,293.96 points, or 5.1%, to 26,703.32. The S&P 500 index gained 135.17 points, or 4.6%, to 3,089.39. The Nasdaq added 384.80 points, or 4.5%, to 8,952.16. The Russell 2000 index of smaller company stocks picked up 40.84 points, or 2.8%, to 1,517.18.
» THE LATEST: Complete coverage of coronavirus in Georgia
Technology companies led the broad gains, which gave the Dow its biggest-ever point gain and biggest percentage increase since March 2009. The S&P 500 index jumped 4.6%, its best day since December 2018.
European benchmarks were mostly higher, and Asian markets rose broadly.
Bond prices fell, pushing yields higher after having touched another record low earlier in the day. The yield on the 10-year Treasury note rose to 1.15% from 1.12% late Friday.
Why stocks rebounded
Investors are increasingly anticipating that the Federal Reserve and other major central banks around the world will lower interest rates or take other steps to shield the global economy from the effects of the outbreak.
“Investors have convinced themselves that global central banks will likely be even more accommodative in order to short-circuit any psychological damage,” said Sam Stovall, chief investment strategist at CFRA.
Credit: Richard Drew
Credit: Richard Drew
Goldman Sachs economists said Sunday that they see the Fed cutting rates by 50 basis points by its March meeting or sooner, and probably 100 basis points this year, a forecast about in consensus with current market pricing, according to CNBC.
What’s next
Bill Nelson, chief economist at the Bank Policy Institute and a former Fed economist, said the Fed and other major central banks, possibly including China's, could announce coordinated rate cuts by Wednesday morning. The cut would at least be a half-point and perhaps even three-quarters, he said.
“The only way to get a positive market reaction is to deliver more than expected,” he said.
»COMPLETE CORONAVIRUS COVERAGE
The International Monetary Fund and World Bank announced simultaneously Monday that they are ready to help countries affected by the coronavirus through their emergency lending programs and other tools.
“We will use our available instruments to the fullest extent possible,” the IMF managing director, Kristalina Georgieva, and World Bank President David Malpass said in a joint statement. “International cooperation is essential.”
Encouraging signs
The statement echoed similar promises to act if necessary from the Federal Reserve on Friday and the Bank of Japan during the weekend. Traders have priced in a 100% probability that the Fed will cut rates by a half-percentage point during or before its March meeting.
One encouraging sign to traders is that the finance ministers and central bank leaders of the Group of Seven major industrial countries will hold a conference call on Tuesday to discuss an economic response to the viral outbreak.
Economic impact
There were signs that the economic impact was continuing to mount from the virus.
A measure of China's manufacturing output plunged last month to its lowest level on record, as the viral outbreak closed many factories in China’s major industrial centers. More companies are warning investors that their finances will take a hit because of disruptions to supply chains and sales.
And the Organization for Economic Development, a research organization made up of mostly advanced economies, said Monday the viral outbreak “presents the global economy with its greatest danger since the financial crisis” in 2008.
The OECD cut its world growth forecast and said that even if there are only limited outbreaks outside China, the global economy will grow just 2.4% this year, the weakest since the crisis. That forecast matches several private estimates.
If other countries are hit with outbreaks similar to China's, growth could fall as low as 1.5%, the OECD said.
Separately, economists at Goldman Sachs slashed their forecasts for U.S. growth to 0.9% in the first quarter and to zero for the April-June quarter.
For investors, the great amount of uncertainty about how consumer behavior and spending will be affected has been unsettling.
“It’s not a typical economic blow,” said Bill Strazzullo of Bell Curve Trading. “What if major cities are on some kind of a lockdown? What will that do to restaurants, entertainment, shopping, travel? It's almost impossible to game this out.”
Investors remain jittery
Last week’s rout knocked every major index into what market watchers call a “correction,” or a fall of 10% or more from a peak. Market watchers have said for months that stocks were overpriced and long overdue for another pullback. The last time the market had a drop of that size was in late 2018, when the trade war with China was escalating and investors were worried about rising interest rates.
The stock surge notwithstanding, the fact that investors are holding onto Treasury’s at near-record-low yields shows they are still worried.
“The fear factor is still very high,” said Kirk Hartman, president of Wells Fargo Asset Management. “Do you really want to own a 10-year Treasury at 1 percent? I don’t think so. I think this is a classic market in crisis.”
Monday’s big winners
Shoppers stocking up on everyday goods as fear over the coronavirus’ spread hits consumers helped lift shares in household goods companies. Costco jumped 10%. Walmart rose 7.6%. Procter & Gamble gained 5.6%.
Technology and health care stocks accounted for a big share of the gains. Apple climbed 9.3%, and Gilead Sciences rose 8.7%. The biotechnology company has been testing one of its drugs as a potential treatment for the coronavirus.
Stimulus hopes helped shore up markets in Asia earlier. The Nikkei 225 index closed 1% higher, while the Shanghai Composite index rose 3.2%.
Other markets
Oil prices have also slumped as traders priced in the prospect of lower demand as a result of the virus outbreak. Last week, oil prices tanked by about 15%. On Monday, benchmark U.S. crude rose $1.99, or 4.4%, to settle at $46.75 a barrel. Brent, the international standard, gained $2.23 to close at $51.90.
Wholesale gasoline rose 57 cents to $1.54 per gallon. Heating oil climbed 5 cents to $1.53 per gallon. Natural gas rose 7 cents to $1.76 per 1,000 cubic feet.
Gold rose $28.20 to $1,592.30 per ounce, silver rose 29 cents to $16.68 per ounce and copper rose 5 cents to $2.60 per pound.
The dollar fell to 107.87 Japanese yen from 108.42 yen Friday. The euro strengthened to $1.1163 from $1.1028.
—Compiled by ArLuther Lee for The Atlanta Journal-Constitution.
About the Author
