Wall St.Journal Weekend 29Feb2020

B4| Saturday/Sunday, February 29 - March 1, 2020 THE WALL STREET JOURNAL. THE WALL STREET JOURNAL. Saturday/Sunday, February 29 - March 1, 2020 |B

W

hen the S&P 500

closed at a re-

cord on Feb. 19,

American stocks

seemed un-

touched by the

anxiety around the coronavirus

epidemic that had already rattled

investors in other markets, in-

cluding bonds, commodities and

some foreign shares.

Ten days later, an unnerving

reality has set in. The S&P 500

suffered its fastest-ever 10% de-

cline from an all-time high. The

Dow Jones Industrial Average just

had its worst week since the start

of the 2008 global financial crisis.

Shares of manufacturers, banks

and utilities alike have dropped

by double digits.

Andrew Freedman, a 31-year-

old finance professional, was in

an Uber in Connecticut on Mon-

day morning when he noticed his

driver fiddling with his phone.

When he asked his driver to pay

attention to the road, he was

stunned by his response: “Do you

mind if I pull over for a minute?

The market’s open, I have to sell

some things.”

Weary traders describe the

past week as one of the most try-

ing stretches on Wall Street in re-

cent memory. Investors and ana-

lysts pore over the latest news on

quarantines, illness counts and

death rates, only to have those

figures overtaken by events and

overshadowed by reports that of-

ten can’t be substantiated. Portfo-

lio managers are deluged with

calls from clients asking ques-

tions no one can answer.

Financial markets are in unset-

tling new territory. For decades,

discussion of the market had of-

ten centered around whether

stocks were in a bubble—in other

words, if their gains had out-

stripped economic reality. There

was the dot-com bubble. The

housing bubble. And more re-

cently, debate over whether a re-

cord-long run in stocks had made

the market ripe for a fall. But the

coronavirus represents something

new: a non-financial, exogenous

force whose impact on the global

economy is huge and unknowable.

The smartest minds on Wall

Street and beyond are having dif-

ficulty discerning whether the ep-

idemic will end up being a short-

term disruption, or a more

sustained and lasting threat that

upends the lives of millions of

people around the world.

Will the offices and factories

and schools of America and Eu-

rope close up like the ones in

China did? Will the streets empty

out and shops shutter their doors

as people retreat to their homes?

How long will it take for scien-

tists to understand the workings

of the virus and develop medi-

cines that can slow it down? Until

the answers to some of those

questions become clearer, traders

say, the market could have trou-

ble finding a bottom.

“Everybody’s just trying to fig-

ure out where are the next ru-

mors coming from and where the

viruses are hitting and how bad

they are,” said Thomas di Ga-

loma, managing director of rates

trading at Seaport Global Securi-

ties in New York.

Over the course of seven days

of selling, the S&P 500 dropped

13% from its peak—wiping out

$3.6 trillion in market value.

The yield on the 10-year U.S.

Treasury note—a bedrock of global

finance—has tumbled to a record

low, indicating soaring prices as

traders from other markets seek

out the safety of debt issued by the

richest nation in the world.

In the Treasurys market, those

who have been trying to fight off

the precipitous slide in bond

yields “have gotten stomped out,”

said Mr. di Galoma.

The rout marks the toughest test

yet for a U.S. stock bull market that

the epidemic threatening to

evolve into a pandemic, it’s likely

that U.S. exporters will see a drop

in demand for their products and

that companies will suffer disrup-

tions in their supply chains, said

David Kostin, Goldman’s chief U.S.

equity strategist.

Investors fled riskier assets

across the board, sending the S&P

500 to correction territory, or a

drop of at least 10% from its most

recent high. The speed with

which the correction occurred

caught many by surprise; the in-

dex’s descent, taking just six trad-

ing days, marked its fastest turn

into correction territory ever.

Just after stocks had finished

at an all-time high Feb. 19, Stevie

Onuska, a 26-year-old DJ in Nash-

ville, Tenn., was on the mobile

trading app Robinhood trying to

make a profit off of bets on chip-

maker Advanced Micro Devices

Inc. “I was thinking, cool, every-

thing’s going to stay up. It’s had a

great record,” he said.

Then the market selloff began.

“That was when I was like, ‘oh

crap, I’m out,’” he said.

Shares of airlines, hotels and

cruise operators—whose profits

are likely to drop as quarantines

and health warnings stop con-

sumers from traveling—were

among the worst hit in the past

week of selling. Banks also

slumped, with Bank of America

Corp. and JPMorgan Chase & Co.

bringing their losses for the year

to more than 10% apiece.

Nearly nothing rose in the stock

market—with one exception being

Regeneron Pharmaceuticals Inc.,

which has been collaborating with

the Department of Health and Hu-

man Services to develop treat-

ments to fight the coronavirus.

As traders rushed to place bets

or hedge against further losses,

exchanges were hit by a spike in

trading volumes.

The moves weren’t limited to

so-called active investors, who

pick and choose the companies

they want to invest in. Passive in-

vestors who typically buy and

hold index-tracking funds for pro-

longed periods of time also fled

the market—potentially exacer-

bating the selling pressure hitting

the stock market.

Trading volumes on the SPDR

S&P 500 ETF Trust, an index-

tracking fund that’s one of the

most-traded securities in the

world, jumped 300% above aver-

age on Thursday, according to

Jonathan Krinsky, chief market

technician at Bay Crest Partners.

It’s exactly the sort of reaction

you’d expect for a moment when

investors start doubting the

strength of the economy. The S&P

500 fell 12% the week after U.S.

officials reopened markets for

trading following the Sept. 11 at-

tacks in 2001. And stocks fell as

much as 13% during the course of

the 2003 outbreak of severe acute

respiratory syndrome, or SARS,

according to Citigroup Inc. In

both cases, markets ultimately re-

covered their losses—but only as

it became more apparent that the

global economy would recover.

Until investors have more clarity

on a number of issues—including

the true scope of the infection,

and whether scientists will be

able to deliver effective vaccines

and treatments—they say it’s

likely that markets will continue

to face significant pressure.

Not all investors are in panic

mode. In fact, most of the calls

that Jason Pride, chief investment

officer for private clients at Glen-

mede Trust, has received in the

past few days have been from cli-

ents asking when they should

step in and buy the dip.

Mr. Pride isn’t alarmed yet. He

is hopeful that health officials’ ef-

forts to contain the epidemic will

prove fruitful, and that ulti-

mately, the slowdown in eco-

nomic activity around the world

will prove to be temporary—not

the start of a deep downturn.

But even he isn’t giving his cli-

ents the all clear. The speed with

which markets have shrunk from

their highs has Mr. Pride skepti-

cal the selloff is at its end.

“We’re not there yet,” Mr.

Pride said.

—Amrith Ramkumar

contributed to this article.

BYAKANEOTANI ANDPETERSANTILLI

U.S. stocks were at record levels just last

week, seemingly unaffected by fears that

coronavirus could dent the global economy.

Then reality took hold. Apple

–$220B

Microsoft

–$192B

Alphabet

–$128B

Facebook

–$71B

Exxon

Mobil

–$38B

Chevron

–$34B

JPMorgan

Chase

–$74B

Wells

Fargo

Berkshire

Hathaway

–$58B

Citigroup

–$31B

Morgan

Stanley

Amazon.com

–$143B

Home

Depot

–$28B

Boeing

–$36B

Procter

& Gamble

–$30B

Bank of

America

–$54B

Disney

–$43B

Intel

–$50B

Nvidia

–$27B

Mastercard

–$55B

Cisco

–$27B

Visa

–$68B

UnitedHealth

–$48B

Johnson &

Johnson

Source: FactSet

Change in market value for S&P 500 stocks, Feb. 19-

–33% –20% 0% +11%

Circlesizereflectsabsolutevaluelostorgained

–15% –10%

Threecompanies

rose in value*

497companies

lost value

CONSUMERSTAPLES

TECHNOLOGY

CONSUMER

DISCRETIONARY

FINANCIALS

REALESTATE

MATERIALS

COMMUNICATION

SERVICES

ENERGY

UTILITIES

INDUSTRIALS

HEALTHCARE

Thesellinghittech

stocks—whichhad

ledthemarket

higherupuntilthe

selloff—particularly

hard.

Theimpactonthe

energysectorhas

beenexacerbated

byadownturnin

oilprices.

Bankstockstumbled,

hurtbyasharpdecline

inTreasuryyields.

Losseshavebeenrelativelymodestinthe

consumerstaplesandutilitiessectors,which

tendtobepopularindownturns.

E*Trade

GileadSciences

Regeneron

Pharmaceuticals

+11% in value

Nike

–$20B

Costco

–$19B

Coca-Cola

–$26B

AmericanAirlines

–33%invalue

Walmart

–$28B

38%

The percentage increase in

February for shares of Zoom Video

Communications, a provider of

remote conferencing software.

The increase has been driven by the

expectation that companies will hold

more meetings via videoconference

instead of face to face.

$50 million
Potential lost revenue from the coronavirus outbreak at Royal Caribbean
Cruises, the company said earlier this month.

12%-13%
The estimated
percentage of
overall Puma
sales coming
from China.
Puma said it
expected
sharply slower
sales growth
in 2020.

15 days
How long casinos in Macau, the
world’s richest gambling market,
were forced to close their doors to
help curb the spread of coronavi-
rus, starting Feb. 4. Some analysts
estimated gross gambling revenue
could decline 65%.

1

2345678

9 10 11 12 13 14 15

16 17 18 19 20 21 22

23 24 25 26 27 28

S

Macau’s February casino closures

MTWTFS

Allclosed 12outof41closed

Note: Through Feb. 28
Source: Macau’s Gaming Inspection and
Coordination Bureau

2,

The decline in U.S. travel agency ticketing by dollars
transacted this past week, compared to the same period
9.4% last year, according to Vertical Research Partners.

EXCHANGE EXCHANGE

75%

The drop in March demand for

travel to the Asia Pacific region,

excluding China, reported by United

Airlines. United had expected those

routes to account for 10% of

capacity this year.

60 days

Polyester stockpiles in China have doubled from a norm of 30 days,

indicating the synthetic resin isn’t getting to mills that weave it into

yarn, says Salmon Lee, a principal consultant with Wood Mackenzie.

China produces about two-thirds of the world’s polyester, he said.

35%
Percentage of Microsoft
sales generated by its
personal-computing business
in the previous quarter.
Microsoft said Wednesday
that sales for the personal-
computing business are
expected to fall short due to
supply-chain disruptions from
the coronavirus outbreak.

100%
Friday’s odds that the Federal
Reserve cuts its target interest
rate at its next meeting in
March, according to the futures
market. That’s up from an 11%
chance one week ago.

Probability of a March rate cut

Note: At the March 18 meeting of the Federal Reserve’s
rate-setting committee
Source: CME Group

100

0

25

50

75

%

Feb.

The number of dealers that Volkswagen has

in China, two-thirds of which are closed. About

40% of the company’s sales are in China.

$

million

Marriott’s

expected reduction

in fee revenue per

month this year,

compared with its

outlook, assuming

current low-

occupancy rates

in the Asia-Pacific

region continue.

$35 million-$45 million

Ralph Lauren’s decrease in fourth-quarter

income in its fiscal year 2020 because of slower

sales in China, Japan and Korea

$

billion

Possible hit to

revenues at

airlines, airports

and other related

industries,

according to the

chief executive of

the International

Bureau of

Aviation, an

industry

consultant.

$50 million-$60 million

The expected hit to Under Armour

sales in the first quarter related to

the coronavirus outbreak.

$

MILLION

REDUCTION TO

EXPECTED SALES IN

THE CURRENT

QUARTER FOR CHIP

MAKER NVIDIA DUE

TO THE VIRUS.

3 billion yuan

Decline in first-quarter profit pre-

dicted by China Baowu Steel

Group, the country’s largest steel

producer, because of disruptions

from the epidemic. That’s roughly

$428 million.

Share-price and index performance

Source: FactSet

Zoom

S&P

60

• 
  

0

20

40

%

Feb.

40%

DROP IN AVERAGE

COAL CONSUMPTION

AT MAJOR CHINESE

POWER COMPANIES

FROM A YEAR

EARLIER IN THE

WEEK THROUGH FEB.

25, ACCORDING TO

GOLDMAN SACHS.

$1 trillion

Potential loss in global output

resulting from an extended

shutdown of Chinese

manufacturing, exports and

consumption, according to

some economists.

87%

The percentage of member com-

panies of the American Chamber

of Commerce in Shanghai that

expect the epidemic to have a

negative impact on revenue.

500,

THE NUMBER OF

BARRELS OF CRUDE

PER DAY THAT SAUDI

ARABIA PLANS TO

CUT FROM ITS SHIP-

MENTS TO CHINA IN

MARCH. ORDINARILY,

SAUDI ARABIA SUP-

PLIES CHINA WITH

1.7 MILLION BARRELS

OF CRUDE PER DAY.

started 11 years ago next month. In-

vestors have learned over the past

decade that it pays to stay invested

in stocks, a mindset that has paid

off handsomely for those who have

used recession scares in 2011,

2015-2016 and 2018 to add to

shareholdings at lower prices.

At the same time, this rally has

been by acclamation the most

hated ever, one in which tradi-

tional stock mutual funds suf-

fered significant outflows and

some of the most visible buyers

of shares were corporations pur-

suing buybacks to reduce their

share counts and put extra cash

to work. Households who saw

their portfolios eviscerated by the

financial crisis have been reluc-

tant to return to the market. Even

seasoned money managers have

at times expressed disdain for the

rally. They’ve argued that the

stock market was juiced by the

extraordinary monetary policy

central banks put in place after

the financial crisis. To them,

stocks looked ripe for a selloff

long before the coronavirus epi-

demic surfaced. They just weren’t

sure what the trigger would be.

The question for now in mar-

kets is whether the steep decline

of the past week will be just an-

other blip on the way to further

highs in this cycle, whether the

crash that a handful of bears have

for years been calling for is actu-

ally at hand, or whether this is

something even worse that no

one foresaw at all.

Tony Roth, chief investment

officer at Wilmington Trust In-

vestment Advisors, said the firm’s

investment committee had sev-

eral emergency meetings before

deciding to lower its position in

stocks to less than the benchmark

it tracks early in the week.

Before that change, Wilmington

Trust held a larger investment in

stocks than its benchmark, and the

move from an “overweight” posi-

tion to “underweight” marked the

first such change in the 5½ years

Mr. Roth has been at the firm.

“This is something that’s un-

precedented in modern times, and

the markets are now reacting in a

way that’s more realistic,” Mr. Roth

said. “We view this as a pretty sig-

nificant shock to the system.”

The market’s rout began in

earnest Monday, after news over

the weekend of the virus spread-

ing rapidly in Italy showed inves-

tors that the pandemic had

evolved from a Chinese crisis into

a global and increasingly out-of-

control problem. That realization

sent the Dow tumbling more than

1,000 points and the yield on the

10-year U.S. Treasury note fell

briefly below an intraday record.

But for many, the market’s

turning point came Tuesday, when

officials from the U.S. Centers for

Disease Control and Prevention is-

sued a stark warning. Experts now

expected the coronavirus to

spread widely throughout the

country. Schools and businesses

should brace themselves against a

potential outbreak, officials said.

The CDC’s warning drove home

a point that many had largely dis-

missed just weeks prior—that the

U.S. might not escape the disrup-

tion caused by the coronavirus

that has already brought to a halt

everyday life in China, Italy,

South Korea and other countries.

Wall Street was quick to re-

spond. By Thursday, analysts at

Goldman Sachs Group Inc.

warned they no longer expected

U.S. companies to post any earn-

ings growth at all in 2020. With

Stocks may have

trouble finding the

bottom until investors

have more clarity.

CLOCKWISE FROM TOP LEFT: PETER DASILVA/SHUTTERSTOCK; YILEI SUN/REUTERS; PAUL YEUNG/BLOOMBERG; AIZHU CHEN/REUTERS; JEFF CHIU/AP; AFP/GETTY IMAGES;

ALY SONG/REUTERS; THOMAS PETER/REUTERS; JOEL CARRETT/SHUTTERSTOCK; PUMA; ISTOCK/GETTY IMAGES; UNDER ARMOUR

The Week That

Erased $3.6 Trillion

From The

Stock Market

291,
Employees of Nestlé that the
company asked to temporarily
postpone all overseas business
travel—to anywhere—until March 15.