Monday February 24th

24-02-2020

Dow futures drop 770 points as coronavirus cases outside China surge

U.S. stock index futures pointed to sharp declines on Wall Street at the open on Monday as the number of coronavirus cases outside China surged, stoking fears of a prolonged global economic slowdown from the virus spreading. As of 7:47 a.m. ET, Dow Jones Industrial Average futures were down 774 points, indicating a drop of 767 points at the open. Dow futures were down more than 800 points earlier in the session. S&P 500 and Nasdaq 100 futures were down by 2.5% and 2.8%, respectively. Futures pointed to the biggest one-day points drop for the Dow since August, when the 30-stock average slid 800 points. “I’ve now come to the view that equity markets, global equity markets, have to reprice to take into account or fully discount the dramatic economic impact that all of this is going to have,” Jonathan Pain, author of The Pain Report, told CNBC’s “Street Signs” on Monday morning in Asia. “I believe that repricing … has just started and I think it’s gonna be approximately 20% to 25% in the next month or so.” “I don’t think there’s a letter in the alphabet which adequately describes the profile of the economic shock that … we’re beginning to see,” Pain said. “Of course there will be a recovery at some point in time, however, we don’t know when that point in time is.” S&P 500 futures pointed to the biggest daily decline for the broad index since August. Airline stocks Delta and American were both down more than 4% in the premarket while United traded 2.6% lower. Shares of casino operators Las Vegas Sands, and Wynn Resorts dropped more than 3% each. MGM Resorts slid 6.7%. Chipmakers were also down broadly before the bell. Nvidia shares were down more than 6% while Dow-component Intel traded 3.5% lower. AMD dipped 7.2%. The VanEck Vectors Semiconductor ETF (SMH) was down by 3.6%. Apple and its suppliers took a hit in the premarket as well. Shares of the iPhone maker were down by 4.6%. Skyworks Solutions and Qorvo dropped 5% and 3.8%, respectively. Legendary investor Warren Buffett said the coronavirus spread has softened up the U.S. economy, but noted it its still healthy. “Business is down but it’s down from a very good level,” Buffett told CNBC’s Becky Quick on “Squawk Box.” “You look at car holdings —railcar holdings, moving goods around. And there again, that was affected by the tariffs too because people front-ended purchases, all kinds of things.” Buffett added he still recommends buying stocks. Monday’s moves came as investors watch developments surrounding the coronavirus outbreak that was first reported in China, but has spread rapidly in other countries especially South Korea and Italy, which reported a spike in the number of confirmed cases in recent days. South Korea raised its coronavirus alert to the “highest level” over the weekend, with the latest spike in numbers bringing the total infected to more than 750 — making it the country with the most cases outside mainland China. Meanwhile, outside of Asia, Italy has been the worst affected country so far, with more than 130 reported cases and three deaths. “There remains a large degree of uncertainty surrounding the virus, and no one knows how this will ultimately play out,” said Keith Lerner, chief market strategist at Truist/SunTrust Advisory. “With stock prices and valuations still near cycle highs, the risk of a worsening virus outbreak has not been priced into the market to a great extent.” The major averages hit record highs all hit record highs earlier this month despite lingering concerns over the coronavirus. In the earlier days after the outbreak, many economists had predicted a V-shaped recovery, which describes downturns that see a steep fall before recovering sharply. However, traders are loading up on traditional safe havens such as U.S. Treasurys and gold. The benchmark 10-year note yield fell to 1.397% on Monday, putting the key rate close to it all-time low around 1.36%. Yields move inversely to prices. Gold futures jumped more than 2% to around $1,685 per ounce. “Simply put, the markets were not setup for where we are today,” said Gregory Faranello, head of U.S. rates trading at AmeriVet Securities, in a note. It’s an “extremely dynamic environment. And one which continues to warrant respect and caution.” Stocks in South Korea led losses among major Asian markets on Monday after the country raised its coronavirus alert to the “highest level” following a rapid spike in cases over the weekend. The Kospi was down 3.87% to close at 2,079.04. Elsewhere, shares in mainland China were mixed on the day. The Shanghai composite was down 0.28% to about 3,031.23 while the Shenzhen component was up 1.23% to 11,772.38. The Shenzhen composite advanced 1.364% to approximately 1,933.36. Hong Kong’s Hang Seng index fell 1.73%, as of its final hour of trading. Markets in Japan were closed on Monday for a holiday. Oil prices tumbled 4% on Monday, as the rapid spread of a coronavirus in several countries outside China left investors concerned about a hit to demand. Global shares also extended losses as worries about the impact of the new virus grew, with the number of infections jumping in Iran, Italy and South Korea. Brent crude was down $2.42, or 4.1%, to $56.09 a barrel. U.S. crude futures fell by $2.12, or 4%, to $51.26.