By The Washington Post · David J. Lynch, Thomas Heath, Taylor Telford · BUSINESS
The Dow Jones industrial average sank nearly 1,339 points or 6.3% to finish at 19,898.92. Both the broader Standard & Poor's 500 index and the technology-laden Nasdaq lost about 5%. Trading at one point was halted for the fourth time in six sessions when stocks tripped a circuit-breaker designed to prevent panic selling.
Bond prices also fell, sending yields higher, and oil prices plunged to an 18-year low amid continued uncertainty over the duration of the coronavirus shutdown.
Even the prospect of roughly $1 trillion in emergency federal aid, including $1,000 checks for taxpayers and an airline industry bailout, was not enough to halt the retreat. Dire predictions about the global pandemic's spread and its likely economic toll discouraged traders.
After growing without interruption since mid-2009, the U.S. economy will likely shrink in the second quarter at an annual rate of 14% - a staggering decline that exceeds the worst of the global financial crisis, according to economists at JPMorgan Chase. A sudden stop that began in China, where the virus originated, is now rippling through the U.S., Europe and vulnerable emerging markets, likely shrinking global output for the entire year.
Tomorrow's Labor Department report of initial jobless claims is expected to show evidence of the first layoffs triggered by the pandemic. Ian Shepherdson, chief economist for Pantheon Macroeconomics, said he expects claims to reach 250,000 this week, up from 211,000 last week and to top 1 million next week.
"The thing that has me the most concerned is the speed and severity of what's playing out here," said Gibson Smith, a prominent bond fund manager with Denver-based Smith Capital Investors. "There's just a lot of stress in the system."
Indeed, markets for U.S. government and corporate debt strained to handle a flood of sell orders. Investors sold 10-year Treasury securities to raise cash, sending prices down and yields up to 1.2%. The 10-year yield has more than doubled since March 9, when stocks and bonds began plunging in tandem. Bond prices and yields move in opposite directions.
Treasurys have been whipsawed during the coronavirus pandemic as investors seeking a safe haven initially drove bond prices up and yields down, said Mark Heppenstall, chief investment officer of Penn Mutual Asset Management. In the past week, as institutional investors sought to raise cash by selling treasuries, prices sagged while yields jumped.
Some analysts said concern over Washington's unprecedented spending plans, which will balloon the already swollen federal budget deficit and debt, were behind the latest moves.
"Global fixed income markets this morning have lost confidence in the ability of the governments of the world to finance the fiscal stimulus they are proposing," Carl Weinberg, chief international economist for High-Frequency Economics, wrote in a note to clients. "Traders, investors and speculators have looked at the size and cost of the fiscal stimulus proposed by the United States and other governments - especially Italy - and decided to sell sovereign debt of all kinds."
Investors said corporate debt markets also are not yet operating smoothly. Companies have taken advantage of record-low interest rates in recent years to load up on debt. That strategy worked well so long as short-term borrowings could be periodically refinanced.
Now, some cash-strapped companies that are not earning enough to make their loan payments may struggle to roll over their debt, said Anne Van Praagh, head of global credit strategy for Moody's Investors Service.
Like most investors, Moody's anticipates a wave of credit downgrades and corporate debt defaults. Energy companies hit by the abrupt oil price decline and businesses that are most exposed to the evaporation of consumer spending - such as airlines, hotels, cruises, and automakers - face the greatest risk.
"We're going to go into a period of severe and extensive credit shock across many regions, sectors and asset classes," she said. "This is unprecedented."
Amid unpredictable day-to-day changes in market conditions, former Fed Chairs Janet L. Yellen and Ben Bernanke called for the central bank to begin purchasing high-quality corporate debt as part of its economic rescue efforts - something it has never before done.
"The Fed's intervention could help restart that part of the corporate debt market, which is under significant stress," the pair wrote in The Financial Times.
Meanwhile, the Dow's plunge from its all-time high of 29,551 on Feb. 12 has eliminated one of the president's favorite campaign arguments. As stocks soared since the 2016 election, Trump repeatedly took credit at campaign rallies and in White House remarks. He drew attention to the market setting all-time highs and boasted about the effect on voters' investment accounts.
As late as Feb. 24, the president took to Twitter to talk up stock prices, tweeting: "Stock market starting to look very good to me."
The Dow has lost more than 8,000 points since then.
Shares of Boeing, once the showcase of the bull market, closed just below $102, less than one-quarter of its March 2019 peak. Trump has pledged federal aid for the wheezing aerospace giant.
"If 2008 was the Great Financial Crisis, this is the Great Virus Crisis," said Ed Yardeni, president of Yardeni Research. "It's all at once a health crisis, financial crisis and economic crisis. We need to fix the health part of it before we have it solved, but we can take financial and fiscal steps to blunt its effects. We are starting to do that now."
All three major U.S. stock indexes are in a correction, having declined beyond 20% from their highs.
The Dow marked its eighth straight day of 1,000-point swings, which was considered unthinkable until recently. Stocks are moving on every news conference, financial proposal, headline and medical utterance. The blue chips closed up more than 1,000 points Tuesday off news of a $1 trillion stimulus proposal from the White House.
But that gain was wiped out on Wednesday, as investors sold stocks despite extreme government intervention aimed at cushioning the economy against a coronavirus-fueled recession. The Federal Reserve began the week by slashing interest rates to near zero and reviving a financial crisis-era "quantitative easing program," and on Tuesday the central bank announced plans for a special fund to keep credit flowing during the coronavirus outbreak.
"The longer the economy is in a deep freeze, the strain is only going to increase," said Heppenstall. "There's just so much uncertainty surrounding the coronavirus. It makes it hard for anyone to plan."
European markets also tanked Wednesday as governments introduced sweeping, blank-check stimulus moves to prop up their economies, with the benchmark Stoxx 600 index closing down more than 4% as oil and gas stocks plunged. Germany, Spain and the United Kingdom have hurled hundreds of billions in rescue package funding at the virus. French President Emmanuel Macron went so far as to promise that no French company will be allowed to fail because of the coronavirus impact, saying the government would provide assistance through loans or delayed tax payments and even nationalize industries to keep them afloat.
Yields on Italian debt rose to 2.3%, roughly twice what they were less than one week ago.
"People are panicked," said Nancy Tengler of Tengler Wealth Management. "If there's too much stimulus, then the market take is things must be really bad. And if there's not enough, then there's no leadership. People are worst-case-scenario-ing it."