Dow suffers worst one-day loss since 1987

New York  — The Dow suffered its worst session since 1987 on Thursday, plunging 10% as emergency measures by central banks failed to douse mounting recession fears due to the coronavirus.

The Dow Jones Industrial Average finished down 2,350 points, or 10%, at 21,200.62. The broad-based S&P 500 plunged 9.5% to 2,480.64, while the tech-rich Nasdaq Composite Index tumbled 9.4% to 7,201.80.

President Donald Trump’s Europe travel ban, announced late Wednesday, sent all three major US stock indexes into a tailspin, with the S&P 500 and the Nasdaq confirming their first bear market since the financial crisis.

The blue chip Dow suffered its worst one-day loss since October 1987’s “Black Monday.”

The benchmark S&P 500 and the Nasdaq have lost over a quarter of their value since reaching record closing highs just 16 sessions ago, as nations around the world grapple with how to contain the fast-moving coronavirus and its economic effects.

A bear market is confirmed when an index sinks 20% or more below its most recent closing high.

“The continued negative action in the market is telling us whatever’s been done so far hasn’t been enough,” said Joseph Sroka, chief investment officer at NovaPoint in Atlanta. “People can’t point to a tangible outcome that’s going to restore normal daily life, so uncertainty remains.

“Prominent organisations, educational institutions and even sports leagues are foregoing events out of caution,” Sroka added. “Leading institutions around the world are setting the tone. We’re cautious because they’re telling us to be cautious.”

Trump’s sweeping travel restrictions, limiting flights from continental Europe to the US, sent European shares to a near four-year low and slammed airline stocks, already battered by the spread of COVID-19.

On Wall Street, airlines plummeted 19.6%. Boeing  fell another 18.1% as JPMorgan abandoned its long-term backing for the company’s shares, setting the aircraft maker on course for its worst week ever.

The US Federal Reserve is expected to cut interest rates for the second time in March at the conclusion of its two-day monetary policy scheduled for next week.

US Treasury yields tumbled as anticipation grew for aggressive easing on the part of the Fed.

The New York Federal Reserve announced on Thursday that it would introduce $1.5-trillion in new repo operations this week.

“Any government action that has dollars tied to it that’s actionable for the banking system would be viewed as a positive,” Sroka said. “But what the market is looking for is tangible evidence that the government is trying to stave off a recession.”

Interest rate-sensitive bank shares dropped 10.5%, while corporate credit worries hit bond fund prices as companies began to draw on credit lines.

The CBOE Volatility index, a gauge of investor anxiety, shot up to levels not seen since November 2008, the height of the financial crisis.

The Trump travel ban also hit oil prices, sending front-month Brent crude down 8.6%. Oil prices were already under pressure after Saudi Arabia and Russia vowed to boost production, flooding the market with supply despite plummeting demand.

In Brazil, the Sao Paulo stock exchange closed down 14.78% on  Thursday, its worst day in a terrible week as Brazil struggled to deal with a market rout caused by the fallout of the new coronavirus pandemic.

The Brazilian real also plummeted to below 5/$ for the first time ever, underlining the heavy toll the pandemic is taking on Latin America’s biggest economy.

The latest bad news could be particularly damaging for Brazilian President Jair Bolsonaro, a Trump admirer, and his economy minister Paulo Guedes, who had said a week ago the real would only fall below 5/$ “if we really mess up”.

The Sao Paulo stock exchange suspended trading twice during the session in a bid to halt the plunge, but the sell-off continued, giving the Ibovespa index the seventh-worst day in its history and a total loss of 26% for the week.

Sharp losses on Monday and Wednesday had also triggered automatic trading halts. Oil and airline stocks were again hit especially hard.

State-run oil company Petrobras lost 20.5%, and airlines Gol and Azul closed down 36% and 33%, respectively.

Reuters