Wall Street plunges after oil shock, trading halts then resumes

NEW YORK/BEIJING-The Associated Press

In this Thursday, Aug. 31, 2017, file photo, a flame burns at the Shell Deer Park oil refinery in Deer Park, Texas. (AP File Photo)

Fear gripped financial markets around the world March 9 as stock prices and bond yields plunge on worries about the effects of a new coronavirus.

The most violent drops came from the oil markets, where prices cratered more than 20 percent. But moves in stocks and bond yields were nearly as breathtaking. In the United States, the S&P 500 plunged 7 percent in the first few minutes of trading, and losses were so sharp that trading was halted.

The Dow Jones Industrial Average lost 1,582 points, or 6.1 percent, after briefly being down more than 2,000. The S&P 500 lost 5.8 percent and the Nasdaq gave up 5.5 percent.

Trading in Wall Street futures was halted for this first time since the 2016 U.S. presidential election after they fell more than the daily limit of 5 percent. Bond yields hit new lows as investors bought them up as safe havens.

European stocks dropped more than 8 percent. Treasury yields careened to more record lows as investors dove into anything that seems safe, even if it pays closer to nothing each day. The main stock indexes in Britain and Germany were down by almost 7 percent. Japan's benchmark closed down 5.1 percent while Australia lost 7.3 percent and the Shanghai market in China was off 3 percent.

London's FTSE 100 tumbled 6.6 percent to 6,034 after opening down by more than 8 percent. Frankfurt's DAX shed 6.9 percent to 10,743 and the CAC 40 in France lost 6.9 percent as well, to 4,793. Italy's FTSE MIB plunged 10 percent to 18,713.

All the selling is the result of fear of the unknown. As COVID-19 spreads around the world, many investors feel helpless in trying to estimate how much it will hurt the economy and corporate profits, and the easiest response to such uncertainty may be to get out.

After initially taking an optimistic stance on the virus hoping that it would remain confined mostly in China and cause just a short-term disruption investors are realizing they likely woefully underestimated it.

The virus has infected more than 110,000 worldwide, and Italy on March 8 followed China's lead in quarantining a big swath of its country in hopes of corralling the spread. That sparked more fears, as quarantines would snarl supply chains for companies even more than they already have.

The new coronavirus is now spreading on every continent except Antarctica and hurting consumer spending, industrial production, and travel.

The S&P 500 has lost 17 percent since setting a record last month. If it hits a 20 percent drop, it would mean the death of what's become the longest-running bull market for U.S. stocks in history. March 9 actually marks the 11th anniversary of the market hitting bottom after the 2008 financial crisis.

The circuit breaker tripped in the U.S. stock market is meant to slow things down and give investors a chance to breathe before trading more.

The yield on the 10-year Treasury note plunged to 0.49 percent. Early last week, it had never been below 1 percent.

Brent crude, the international standard, lost $10, or 22 percent, to $35.27 per barrel. Benchmark U.S. crude fell $8.91, or 20 percent, to $32.37.

The benchmark U.S. crude price was down over 20 percent, the biggest daily drop since the Gulf war in 1991 to hit their lowest levels since 2016. They were down as much as 30 percent earlier, deepening a rout that began when Saudi Arabia, Russia and other major producers failed to agree on cutting output to prop up prices. A breakdown in their cooperation suggested they will ramp up output just as demand is sliding.

Investors usually welcome lower energy costs for businesses and consumers. But it can also hurt producers, such as oil companies. The last time crude prices fell this low, in 2015, the U.S. saw a raft of bankruptcies by smaller energy companies.

The abrupt plunge in markets added to the anxiety over the coronavirus, rattling markets and sending investors in search of safe havens like bonds.

"A blend of shocks have sent the markets into a frenzy on what may only be described as `Black Monday,'" said Sebastien Clements, an analyst at financial payments platform OFX.

"A combination of a Russia vs. Saudi Arabia oil price war, a crash in equities, and escalations in coronavirus woes have created a killer cocktail to worsen last week's hangover.''

In Saudi Arabia, the Riyadh stock exchange suspended trading of state-owned oil giant Saudi Aramco after its share price sank by the daily 10 percent limit at the opening.

Investors already were on edge about the mounting costs of the coronavirus outbreak that began in China and has disrupted world travel and trade.

Anxiety rose after Italy announced it was isolating cities and towns with some 16 million people, or more than one-quarter of its population, in its industrial and financial heartland.

The International Energy Agency said in a report on March 9 that oil demand could fall this year for the first time since the global financial crisis in 2009.

"The oil price will stay low'' in the $30s per barrel, IEA chief Fatih Birol said.

Chinese factories that make the world's smartphones, toys and other consumer goods are gradually reopening but aren't expected to return to normal production until at least April. That weighs on demand for imports of components and raw materials from China's Asian neighbors.

Apple Inc. says slowdowns in manufacturing iPhones in China will hurt its sales totals. An airline industry group says carriers could lose as much as $113 billion in potential ticket sales.

Central banks worldwide have cut interest rates. But economists warn that while that might help to encourage consumer and corporate spending, it cannot reopen factories that are due to quarantines or a lack of workers and raw materials.

Investors are looking ahead to a meeting on March 12 of the European Central Bank, which is widely expected to announce new stimulus measures.

Already last week, global stocks were sinking as the spread of the virus prompted governments to follow China's lead by imposing travel controls and canceling public events.

"Global recession risks have risen,'' Moody's Investors Service said in a report. "A sustained pullback in consumption, coupled with extended closures of businesses, would hurt earnings, drive layoffs and weigh on sentiment.''