Markets up sharply, rebounding from 7-day, coronavirus-driven decline

Stocks rose sharply on Wall Street Monday, clawing back some of the losses they took in a seven-day rout brought on by worries that the coronavirus outbreak will stunt the global economy.

The Dow Jones Industrial Average surged more than 700 points, while the benchmark S&P 500 climbed 2.3 per cent, placing in on track for its best day since January 2019. The S&P 500 is coming off a weekly loss of 11.5 per cent, its worst since October 2008 during the global financial crisis.

Despite the pickup in stocks, the bond market signalled that investors are still worried. Bond prices climbed, pushing yields to more record lows. The yield on the 10-year Treasury note fell to 1.08 per cent from 1.12 per cent late Friday. Gold, another traditional safe-haven asset, rose 1.7 per cent.

The big bounce in stocks came after an especially wild day of trading on Friday in which the Dow sank more than 1,000 points before a late wave of buying left it down 350.

Investors are increasingly anticipating that the Federal Reserve and other major central banks around the world will lower interest rates or take other steps to shield the global economy from the effects of the outbreak.

"Investors have convinced themselves that global central banks will likely be even more accommodative in order to short-circuit any psychological damage," said Sam Stovall, chief investment strategist at CFRA.

The Dow climbed 1,293.96 points, or 5.09 per cent, to 26,703.32 by market close. The S&P 500 index rose 4.6 per cent and the Nasdaq gained 4.49 per cent. European benchmarks were mostly higher, and Asian markets rose broadly. 

Canada's main stock index, the S&P/TSX Composite Index, dipped at opening but was up 290.21, or 1.8 per cent, to 16,553.26 by day's end.

The International Monetary Fund and World Bank announced simultaneously Monday that they are ready to help countries affected by the coronavirus through their emergency lending programs and other tools.

'International co-operation is essential'

"We will use our available instruments to the fullest extent possible," the IMF managing director, Kristalina Georgieva, and World Bank President David Malpass said in a joint statement. "International co-operation is essential."

The statement echoed similar promises to act if necessary from the Federal Reserve on Friday and the Bank of Japan over the weekend. Some analysts now speculate that the Fed could cut rates sometime this week, before its next formal meeting March 17-18. Traders have priced in a 100 per cent probability that the Fed will cut rates by a half-percentage point during or before its March meeting.

There were signs that the economic impact was continuing to mount. A measure of China's manufacturing output plunged last month to its lowest level on record, as the viral outbreak closed factories and disrupted supply chains.

Separately, economists at Goldman Sachs slashed their forecasts for U.S. growth to just 0.9 per cent in the first quarter and to zero for the April-June quarter.

OECD predicts slower global growth

The Organization for Economic Development, a research organization made up of mostly advanced economies, cut its world growth forecast in a report Monday. The OECD said that even if there are only limited outbreaks outside China, the global economy will grow just 2.4 per cent this year, the weakest since the financial crisis in 2009. That forecast matches several private estimates.

If other countries are hit with outbreaks similar to China's, growth could fall as low as 1.5 per cent, the OECD said.

For investors, the great amount of uncertainty over how consumer behaviour and spending will be affected has been unsettling.

It's not a typical economic blow. What if major cities are on some kind of a lockdown? What will that do to restaurants, entertainment, shopping, travel?- Bill Strazzullo, Bell Curve Trading

"It's not a typical economic blow," said Bill Strazzullo of Bell Curve Trading. "What if major cities are on some kind of a lockdown? What will that do to restaurants, entertainment, shopping, travel? It's almost impossible to game this out."

Last week's rout knocked every major index into what market watchers call a "correction," or a fall of 10 per cent or more from a peak. Market watchers have said for months that stocks were overpriced and long overdue for another pullback. The last time the market had a drop of that size was in late 2018, when the trade war with China was escalating and investors were worried about rising interest rates.

The virus outbreak that began in central China has been shutting down industrial centres, emptying shops and severely crimping travel all over the world. More companies are warning investors that their finances will take a hit because of disruptions to supply chains and sales.

Nervous shoppers give stocks a boost

As fear over the coronavirus' spread hits consumers, shoppers stocking up on everyday goods helped lift shares in household goods companies. Costco jumped 8.1 per cent. Walmart rose 6 per cent. Procter & Gamble gained 3.5 per cent.

Stocks in travel-related companies have been among the hardest-hit as the outbreak has led to cancelled flights and disrupted vacation plans. Cruise operators continued to pile up losses Monday. Royal Caribbean Cruises fell 2.5 per cent, Norwegian Cruise Line dropped eight per cent and Carnival fell 4.7 per cent.

Technology and health-care stocks accounted for a big share of the gains. Apple climbed 5.9 per cent and Gilead Sciences rose 6.4 per cent. The biotechnology company has been testing one of its drugs as a potential treatment for the coronavirus.

Given that the main economic impact so far of the virus outbreak is on the supply side of economies rather than on the demand side, questions are being asked as to whether looser monetary policy will have any meaningful impact.

"For all the talk of lower rates the one thing a rate cut can't do is get people back to work and supply chains back running again," said Michael Hewson, chief market analyst at CMC Markets.

Stimulus hopes nevertheless helped shore up markets in Asia earlier. The Nikkei 225 index closed 1 per cent higher, while the Shanghai Composite index rose 3.2 per cent. The benchmark for the smaller exchange, in Shenzhen, jumped 3.8 per cent, while South Korea's Kospi climbed 0.8 per cent. The Hang Seng in Hong Kong climbed 0.6 per cent.

China has seen most of the 90,000 or so virus cases worldwide. In the United States, authorities have counted at least 80 cases of the virus, two fatal, and concern was driving some to wipe store shelves clean of bottled water, hand sanitizer and other necessities. Both deaths were men with existing health problems who were hospitalized in Washington state.

Oil prices have also slumped as traders price in the prospect of lower demand as a result of the virus outbreak. Last week, oil prices tanked by around 15 per cent. On Monday, benchmark U.S. crude was up $2.07 to $46.83 per barrel. Brent, the international standard, rose $2.28 to $51.95.