Financial markets fell in early trading Wednesday as investors wait for details on what the U.S. government will do to protect economic growth from the impact of the coronavirus. Economists are warning of a possible recession in 2020, causing investors to flee stocks for less risky assets like bonds and gold.
The Dow slumped 802 points, or 3.2%, to 24,286 shortly after markets opened. The broad-based S&P 500-stock index fell 2.7%, and the tech-heavy Nasdaq declined 2.5%. The declines reversed much of Tuesday's gains, when investors boosted stocks in hopes of a proposed stimulus package from the Trump administration.
The stock market has suffered through three weeks of volatile trading as investors assess the widening impact of the coronavirus, which has spread to 1,000 cases in the U.S. as of Wednesday. At least 32 people have died of the virus nationwide, and there are cases in 37 states — 15 of which have declared emergencies — and Washington, D.C.
Universities including MIT and Harvard are closing their campuses, while a growing number of businesses are banning employees from traveling and asking them to work from home. Many Americans are also postponing or canceling travel plans, which is hurting industries such as airlines and hotels.
"Both the real economy and the financial economy are exhibiting acute signs of stress," Goldman Sachs analysts said in a research note. "Supply chains have been disrupted and final demand has declined for many industries. Travel is contracting sharply as both individuals and businesses restrict movement."
That's likely to lead to a "collapse" of corporate earnings growth in the second and third quarters of 2020, the investment bank predicted. But profits should begin to grow again in the fourth quarter as businesses regain their footing, they added.
End of the bull market?
The record-long bull market, which just marked its 11th anniversary, may be on its last legs given the sharp decline in equities since the disease began spreading in the U.S. last month. The question is whether COVID-19, the disease caused by the coronavirus, will lead to a short economic downturn followed by a swift recovery, or a prolonged slump, Goldman said.
"Uncertainty around the impact the virus is having and will have on business and consumer spending is heightened and explains the dramatic asset volatility in recent weeks," the analysts noted.
For now, investors are eager for Mr. Trump and Congress to deliver a dose of fiscal stimulus that could bolster businesses impacted by the coronavirus. While it's unclear what the package might include, the government could offer benefits such as Small Business Administration disaster loans, a temporary payroll tax cut and a new paid medical leave policy, according to Height Securities. The Treasury Department may also delay the April 15 deadline for filing taxes, according to The Wall Street Journal.
"Facing increased cases of the virus, potential social distancing measures and adverse financial market reactions, pressure on the White House and Congress to act is significant," Height Securities analysts said in a research note. "We believe that Congress understands if cannot afford not to send a signal of support to impacted workers, industries, and the markets."