Wall St.Journal Weekend 29Feb2020

A8| Saturday/Sunday, February 29 - March 1, 2020 **** THE WALL STREET JOURNAL.

WORLD NEWS

leashed a frenzy of trading

among investors big and small

as the outlook for economic

growth and corporate profits

this year darkened, helping fuel

the swift decline in stocks and

bond yields. Stock trading vol-

umes jumped to a year-long

high on Thursday while listed

options trading soared to a re-

cord.

About $18 billion left U.S.

stock mutual and exchange-

traded funds during the week

ended Wednesday, the biggest

such outflow in nine weeks, ac-

cording to a Bank of America

analysis of data from EPFR

Global.

Meanwhile, the increased

turbulence stoked a jump in

trading in retirement funds.

Trading activity among inves-

tors at large employers was

about 11 times higher than nor-

mal on Thursday, according to

Alight Solutions, a rare occur-

rence since 2008.

The frenetic activity has

helped push the S&P 500 down

more than 10% from its highs

at unprecedented speed, with

the broad index falling from a

record into a correction in just

six sessions.

Adding to the anxiety: Much

remains unknown about how

far the virus will spread and

the true harm it could do to

economic growth around the

world. Some investors have

warned that it is too soon to

bet on a swift stock rebound,

and many are bracing for more

volatility.

Zhiwei Ren, portfolio man-

ager at Penn Mutual Asset

Management, called Friday’s

gyrations “very puzzling,” at-

tributing the late rally to bar-

gain hunters trying to find at-

tractive values after a brutal

week.

Stock markets around the

world also fell sharply. The

Stoxx Europe 600 index

dropped about 12% this past

week, its biggest one-week fall

spread of Covid-19, allowing

the government to inject emer-

gency funds, lock down cities

and exert more control on pub-

lic transportation.

Officials in Daegu and the

nearby county of Cheongdo,

where South Korea’s outbreak

is concentrated, have com-

plained about a severe short-

age of staff, treatment facili-

ties and supplies.

A 75-year-old man diag-

nosed with the virus died

Thursday after waiting for

treatment as he was told to

quarantine at home because of

a lack of hospital beds. He was

rushed to a hospital Thursday

but died before he could be

admitted.

Separately, a 69-year-old

woman who had been tested

for the virus and quarantined

at home died Friday, with the

results showing positive after

her death.

South Korea reported 16 vi-

rus-linked deaths on Friday.

“If we cannot stop the rise

in Daegu, the situation will get

out of hand and expand na-

tionwide,” according to a

statement by the metropolitan

council of Daegu, South Ko-

rea’s fourth-largest city with

2.4 million people. Daegu said

it has pleaded with the South

Korean government multiple

times for assistance.

Concerns over the broader

outbreak in Japan—where five

people have died—prompted a

rush to buy daily supplies Fri-

day, with many store shelves

swept clean of toilet paper,

tissue and sanitary pads.

On Thursday, Prime Minis-

ter Shinzo Abe asked all public

schools to close starting Mon-

day, an abrupt request that

has drawn complaints from

some local governments as

well as ordinary Japanese.

Some local officials say their

schools don’t have enough

time to prepare homework for

students, while parents say

they can’t arrange child care

in time.

Meanwhile, China on Friday

continued to report a slowing

spread of the epidemic. The

trend has bolstered Beijing’s

optimism that its use of ex-

traordinary quarantine mea-

sures is helping to contain the

disease.

The National Health Com-

mission said it logged 327 new

infections across China on

Thursday. It said Covid-

claimed 44 lives on Thursday,

raising China’s death toll to

nearly 2,800.

South Korea injected more
than $13 billion in emergency
funds to stoke economic activ-
ity sapped by the fast-spread-
ing coronavirus, while a re-
gional government in Japan
declared a state of emergency
in a bid to contain its own out-
break.

The widening outbreaks in
these two countries contrasted
with the epidemic’s slowing
expansion in China, where of-
ficials reported Friday the
lowest daily rise in new cases
since they locked down the
city where the coronavirus
was first detected.
South Korean Finance Min-
ister Hong Nam-ki said Friday
that the country would spend
16 trillion won ($13.19 billion)
providing financial support to
businesses and individuals
suffering as economic activ-
ity nosedives. Mr. Hong said
he would push the National
Assembly to approve another
6 trillion won in emergency
aid soon.
South Korea, the hardest-
hit country apart from China,
said it had 2,337 confirmed
coronavirus patients as of Fri-
day afternoon, up from the
prior day’s 1,766. The overall
tally nearly doubled from two
days earlier.
In Japan, which has re-
ported 210 Covid-19 cases, the
northernmost Hokkaido pre-
fecture declared a state of
emergency Friday after a spike
in cases there. The Hokkaido
governor urged residents not
to go out this weekend, so as
to help contain an outbreak
that has sickened 63 in the
prefecture and claimed two
lives.
On Friday, South Korean
President Moon Jae-in met
with political leaders at the
country’s National Assembly to
discuss an emergency supple-
mentary budget aimed at cush-
ioning the epidemic’s economic
impact. The plan would provide
funding for small businesses,
especially in the city of Daegu
and its surrounding province,
both severely afflicted with the
Covid-19 disease caused by the
coronavirus.
“Our economy is taking a big
hit. We are in a critical situa-
tion, but we can overcome it,”
said Mr. Moon, whose adminis-
tration has granted itself maxi-
mum authority to blunt further

ByDasl Yoonin Daegu,

South Korea, and

Chun Han Wongin

Hong Kong

South Korea Spends Big to Lift Growth

More than $13 billion

designated to boost

economy hobbled by

the coronavirus

since October 2008. Japan’s

Nikkei 225 fell 9.6% on the

week, its worst since 2016.

South Korea’s Kospi lost 8.1%

for the week, its worst since

2011. The Hang Seng shed 4.3%
      this week.
      Selling remained particu-
      larly acute in areas such as
      travel and leisure stocks, with
      governments taking fresh mea-
      sures to contain the outbreak
      and people continuing to cancel
      travel plans. Shares in Royal
      Caribbean Cruises lost 24% for
      the week, and American Air-
      lines Group stock fell toward
      its worst week on record. U.S.
      crude-oil prices logged their
      worst week since the financial
      crisis.
      In a sharp shift from earlier
      in the year, when confidence in
      highflying technology compa-
      nies and corporate earnings re-
      sults helped push major U.S. in-
      dexes to new heights, shares of
      tech companies within the S&P
      500 were punished as major in-
      dexes tumbled from records.
      The S&P 500 is now off about
      13% from its record on Feb. 19.
      Bank of America lowered its
      estimate for global economic
      growth. Goldman Sachs Group
      said it is expecting 0% corpo-
      rate earnings growth in 2020.
      “This, unfortunately, is the
      perfect storm,” said Doug Co-
      hen, managing director at Ath-
      ena Capital Advisors. “This is
      not something out of a stan-
      dard economic textbook.”
      In one sign of the anxiety
      percolating in markets, the
      Cboe Volatility Index, or VIX,
      jumped to 40.11, the highest
      close since August 2015. The
      VIX, which is based on options
      on the S&P 500, tends to rise
      when stocks are falling and de-
      cline as markets rise.
      —Avantika Chilkoti
      and Chong Koh Ping
      contributed to this article.

for the year. About 95% of
stocks in the broad index are
now down more than 10% from
their highs, according to Dow
Jones Market Data.
Traders and investors de-
scribed a feeling of mounting
apprehension throughout the
week, as major U.S. indexes
logged a series of slides unseen
in years and bond yields fell to
historic lows.
The Dow industrials closed
down 357.28 points at 25409.
on the last trading day of the
month. The S&P 500 fell 24.
points, or 0.8%, to 2954.22. The
tech-heavy Nasdaq finished up
less than 0.1%. The S&P 500
and Nasdaq logged their worst
weeks since October 2008.
As investors ditched stocks,
they flocked to traditionally
safer assets like government
bonds, pushing the yield on the
10-year Treasury note to a re-
cord low of 1.127% in its largest
weekly decline since December

2008. The two-year yield,
      which typically moves with ex-
      pectations for central bank pol-
      icy, slid to 0.878%, notching its
      largest one-week decline since
      September 2001.
      “This has been really quick,
      really deep and, in some re-
      spects, unbelievable,” said
      Mark Stoeckle, chief executive
      officer of Adams Funds, who
      said he is avoiding trading at
      the moment. “I believe the
      market will continue to sell
      off.”
      The stock-market drop un-

ContinuedfromPageOne

Stock

Selloff Is

Extended

PERFORMANCE

S&P500sectorperformancethisweek,byrevenue

exposuretonon-U.S.countries

Source: FactSet

–8%

• 
  


• 
  


• 
  


• 
  

0% 20 40 60

REVENUE EXPOSURE

Materials

Energy

Utilities

Communication

services

Technology

Consumer staples

Real estate

Health care

Industrials

Consumer

discretionary

Financials

Workers disinfect a subway station in Seoul. South Korea is the hardest-hit country after China, with 2,337 confirmed coronavirus patients as of Friday afternoon.

AHN YOUNG-JOON/ASSOCIATED PRESS

Federal Reserve Chairman

Jerome Powell signaled in a

statement Friday the central

bank was prepared to cut in-

terest rates to cushion the

economy against the effects of

the spreading coronavirus,

which he said “poses evolving

risks to economic activity.”

The central bank, he said,

“is closely monitoring devel-

opments and their implica-

tions for the economic out-

look. We will use our tools and

act as appropriate to support

the economy.”

Mr. Powell used similar lan-

guage last June to indicate the

central bank was ready to re-

duce interest rates if needed

after the U.S.-China trade war

threatened to aggravate a

global slowdown. The central

bank subsequently cut its

benchmark rate three times,

most recently in October to a

range between 1.5% and 1.75%.

Fed officials have been try-

ing to avoid either waiting too

long to respond to an unclear

economic threat or acting too

rashly, which could further un-

dermine confidence. By Friday,

however, the sharp market

selloff and the potential for

greater economic disruption

from the epidemic spreading

in the U.S. prompted Mr. Pow-

ell to signal a more explicit

bias toward rate cuts. The

Fed’s next scheduled meeting

is March 17-18.

Unlike past crises, this one

isn’t primarily economic in or-

igin. Nonetheless, officials are

grappling with the prospect

that it becomes an economic

shock.

While the Fed needed to

calm markets, “historically, the

reassurance that works has

been limited because you just

don’t know at that time what

will be needed,” said Vincent

Reinhart, a former senior Fed

economist who is now chief

economist at Mellon.

Among the Fed’s challenges:

The outbreaks represent a

shock to the economy’s capac-

ity to produce goods and ser-

vices, or its supply side. Lower

interest rates can’t on their

own address such supply-side

shocks by, for example, allow-

ing quarantined workers to re-

turn to idled factories.

But interest-rate policy can

help prevent a supply shock

from turning into a demand

shock in which households and

businesses hold off on pur-

chases and investment, and

Fed officials are likely to re-

spond aggressively if needed

to cushion the economy

against those forces.

President Trump, for his

part, renewed his call for rate

cuts Friday, telling reporters,

“I hope the Fed gets involved,

and I hope they get involved

soon.”

Fed Faces Challenges

In Calming Markets

BYNICKTIMIRAOS

Lower interest rates

can’t on their own

address supply-side

shocks.

Chinese Indicators

Hit Record Lows

BEIJING—Official gauges of

China’s factory and nonfactory

activity plunged to record lows

in February as the nation’s

economy struggled to resume

normal production amid the cor-

onavirus epidemic.

The official manufacturing

purchasing managers index

tumbled to 35.7 in February

from 50 in January, indicating a

deep contraction. February’s

reading from the National Bu-

reau of Statistics on Saturday

was the first official data for a

full month of economic activity

in China since the coronavirus

began affecting the economy in

late January.

The index dropped to 38.8 in

November 2008, when the fi-

nancial crisis prompted steep

losses on Wall Street and sent

shockwaves through the global

economy. The 50 mark separates

expansion from contraction.

Adding to the gloom, China’s

nonmanufacturing PMI, also re-

leased on Saturday, sank to a

record low of 29.6 in February

from 54.1 in January. The non-

manufacturing PMI covers such

services as retail, aviation and

software as well as real estate

and construction.

The factory index indicated

contraction for most of 2019,

hit by a trade war between the

U.S. and China. It didn’t cross

back into expansion until late

last year, when trade tensions

between the two sides eased.

The February result came in

far below the median forecast

of 43 by economists surveyed

by The Wall Street Journal. Pur-

chasing by manufacturers is a

leading indicator of business ac-

tivity because factories buy

supplies in anticipation of de-

mand.

Saturday’s results show a

“relatively large impact” from

the epidemic, Zhao Qinghe, an

analyst with the statistics bu-

reau, said in a statement ac-

companying the data release.

March’s readings should im-

prove because of authorities’ ef-

forts to help companies, espe-

cially manufacturing firms,

resume production, he said.

January’s factory reading of

50—indicating neither expansion

nor contraction—didn’t fully re-

flect the impact of the epidemic

since the previous month’s official

survey was completed by Jan. 20.

Economic activity ground to

a halt across the country after

authorities locked down Wuhan,

the city at the epicenter of the

epidemic, on Jan. 23.

While February’s reading re-

flects the first full month in

which the outbreak was widely

known, it also overlaps with the

Lunar New Year period, which

regularly distorts economic ac-

tivity in the first two months of

the year, depending on when it

falls in the Western calendar.

—Jonathan Cheng, Liyan Qi,

Bingyan Wang

and Grace Zhu