Steep sell-off highlights fears that Washington’s response won’t be enough.
Stocks plunged on Wednesday, with the Dow Jones industrial average falling into a bear market, in a drop that reflected investors’ fear that Washington won’t be able to muster a response to the economic crisis triggered by the spreading coronavirus.
A bear market begins when stocks have fallen 20 percent from their high. Though it’s a somewhat arbitrary threshold, in financial markets the designation acknowledges what many investors are surely feeling — that fear-based trading in the stock market may not end soon.
The last time stocks in the United States were in a bear market was during the height of the financial crisis, more than a decade ago.
The S&P 500 fell nearly 5 percent on Wednesday, while the Dow dropped nearly 6 percent. From its February high, the S&P 500 is down 19 percent, while the Dow is down 20 percent.
Stocks have whipsawed this week as investors vacillated between the threat that the coronavirus poses to the global economy and the hopes that governments around the world will unveil a series of measures to help businesses. On Wednesday, World Health Organization officials officially designated the spread of the coronavirus as a global pandemic.
President Trump has signaled he would consider ways to stimulate the economy, and lawmakers and administration officials spent the day Wednesday outlining their possible steps. Options include cutting payroll taxes and extending the American tax filing deadline past April 15. But so far, the White House has not announced any specific measures, and most experts say a payroll tax cut is not an effective way to combat the problems facing the economy.
“What we’ve seen over the past 36 hours is hope for something from a fiscal policy perspective and then this sense that it’s not going to come, or it’s not thought out, so I think that’s the disappointment right now,” said William Delwiche, an investment strategist at Baird, an investment banking and money-management firm based in Milwaukee.
That the virus is unlikely to prove fatal to the vast majority of people who get it offers little comfort to financial markets. Rather, the worry is that efforts to contain the spread of the illness caused by the virus are certain to slow the global economy and corporate profits.
In a note to clients on Wednesday, strategists at Goldman Sachs predicted that the S&P 500 would fall to about 2,450 over the next three months — a further drop of about 11 percent from where the index stood on Wednesday afternoon — as corporate profits tumbled.
The price of benchmark American crude oil fell, after the Saudi Arabian state oil company said for the second time this week that it would expand production capacity.
Yields on Treasury bonds also fell, a decline that reflects a combination of dour expectations for global economic growth, as well as high levels of nervousness from investors, who have bought U.S. bonds as a haven during the market tumult in March. When bond prices rise, yields fall.
In Europe, major indexes fell, giving up early gains that had come after the Bank of England said it would cut interest rates to help British businesses. Shares in Asia also fell.
These stocks are the hardest hit.
The worst-performing stocks on Wednesday cut across industries, reflecting how broad the concern among investors was.
With oil falling again, energy stocks like Apache Corporation and Occidental Petroleum led the slide in the S&P 500. Apache fell about 24 percent, while Occidental fell 18 percent.
Boeing tumbled 18 percent, the biggest drop among components of the Dow Jones industrial average. A person with knowledge of the matter said the carrier planned to drawdown a $13.8 billion credit line to shore up its cash position in the face of uncertainty over the coronavirus outbreak. Boeing also reported that it had lost more orders for its grounded 737 Max.
Boeing’s top executives said in a letter to employees that the company was facing a “global economic disruption” caused by the outbreak. As a result, the company is limiting travel and discretionary spending, restricting overtime and freezing hiring until further notice, they said.
And companies dependent on travel and tourism continued to fall. Norwegian Cruise Line fell 27 percent, and MGM Resorts fell 13 percent. Earlier Wednesday, the Global Business Travel Association said the coronavirus epidemic stood to wipe out more than $820 billion in spending on global business travel.
Wall Street executives tell Trump this is not 2008.
Top Wall Street executives, summoned to a Wednesday meeting with President Trump, said that the banking system was strong and that the current market turmoil was not akin to the 2008 financial crisis.
“This is not a financial crisis,” Citigroup’s chief executive, Michael L. Corbat, told the president. “The banks and financial system are in sound shape and the banks are here to help.”
The Bank of America chief executive, Brian Moynihan, agreed, saying: “We’re very strongly capitalized. We are in a great position.”
Mr. Trump appeared to lament the end of the bull market. He referred to last week’s jobs numbers as strong and said additional numbers coming in suggested the economy was still running smoothly.
“Now we’re hitting a patch,” he said. “And we’re going to have to do something with response to this virus.”
Mnuchin says a tax delay for ‘virtually all’ Americans would pump $200 billion into the economy.
Treasury Secretary Steven Mnuchin told lawmakers on Wednesday that he would recommend to the president that the Internal Revenue Service allow a delay of tax payments without penalty or interest that would apply to “virtually all Americans other than the superrich.”
He noted that all individuals are allowed to request tax payment extensions online but that this would be a special provision meant to help small and medium-size businesses and “hardworking individuals.”
Mr. Mnuchin said that this would not apply to large corporations or the wealthiest Americans, but did not elaborate on what the threshold will be. “That will have the impact of putting over $200 billion back into the economy and that will create a very big stimulus,” he said.
Democrats have a plan, and it doesn’t include a payroll tax cut.
Senate Democrats prepared to release a new fiscal response plan to the coronavirus outbreak, featuring paid sick leave for affected workers as well as breaks on federal student loans and mortgages, block grants to help communities and assistance to help public transit systems stay in operation.
House Democrats were preparing to release a wide-ranging plan of their own on Wednesday, including proposals for government paid sick leave and increased safety net spending on programs like food stamps and unemployment insurance. House Speaker Nancy Pelosi was aiming for a possible House vote on Thursday before lawmakers are scheduled to leave Washington for a weeklong recess.
Notably absent from either the Senate or House proposals is a payroll tax cut, which President Trump has pushed for.
The coronavirus is hitting consumer confidence.
The spread of the coronavirus, along with the tumult it is stirring in financial markets, has begun to drag on consumer confidence, according to a nationwide poll conducted by the online research firm SurveyMonkey for The New York Times.
The poll found the largest single-month drop in confidence since President Trump took office, driven by rising concern about the nation’s economic outlook. The decline was evident among Republicans, Democrats and independent voters alike.
Still, more people (39 percent) expected very good or somewhat good business conditions in the coming year than those who expected very bad or somewhat bad conditions (22 percent).
The polling was begun last week and completed on Sunday, so it does not reflect any further impact from this week’s market upheaval.
High consumer confidence has buoyed Mr. Trump’s presidency. But Mr. Trump’s performance rating in the survey slipped this month, with 51 percent of respondents registering disapproval — including 40 percent who disapproved strongly of how he was handling the job.
Here’s what else is happening.
Two CBS News employees have tested positive for coronavirus, the news division president Susan Zirinsky said on Wednesday. Both employees were based in Manhattan, she said, and the news division is requesting staffers work “remotely for the next two days while the buildings are cleaned and disinfected.” CBS News shows that are shot in New York will “continue to go on,” she said, but in an “alternative location.”
Trump administration officials met on Wednesday with Facebook, Google, Amazon, Twitter and others about how they could help the efforts to stem the spread of the coronavirus. Officials told the companies that the government would soon launch a research database and asked them to develop tools that could help researchers delve into the data.
The Bank of England made an emergency cut to its key borrowing rate by half a percentage point, saying that it was intended “to support business and consumer confidence at a difficult time.”
The Federal Aviation Administration said on Wednesday that it would allow airlines to run fewer flights without running the risk of losing their coveted slots at some busy airports.
Reporting was contributed by Peter Goodman, Alan Rappeport, Ben Casselman, Alexandra Stevenson, Ben Dooley, Niraj Chokshi, Kevin Granville, Carlos Tejada, Jim Tankersley, Matthew Goldstein, Jack Ewing, John Koblin and Marc Tracy.