The Dow and the wider stock market fell sharply on Friday, as fears about the economic impact of the coronavirus took hold.
At its lowest point Friday the Dow (INDU) fell as much as 690 points , ending the day down 603 points, or 2.1%. It was biggest one-day drop since August.
The S&P 500 (SPX) closed down 1.8%, its worst week since October.
Both the S&P and the Dow are now negative for the year.
The Nasdaq Composite (COMP) finished Friday 1.6% lower.
The market gyrations came after the World Health Organization declared the outbreak a public health emergency of international concern late Thursday.
Airlines stocks got clobbered as major operators, including American Airlines (AAL), Delta Air Lines (DAL) and United Airlines, all announced suspensions of their China flights.
At the same time, it’s still earnings season and US companies have have been reporting impressive results. This helped balance the virus worries and propped stocks up, to an extent. On Tuesday the major indexes bounced back from their terrible start to the week, when the S&P logged its best percentage gain since October.
Ripples across different markets
Oil prices have also been affected by the virus outbreak, because China is a big consumer of the commodity.
US oil prices recorded their worst month since May last year, when the US-China trade war and high inventory levels weighed on prices.
“Oil prices were on the defensive again this week as fears surrounding the coronavirus and its impact on oil demand remain front and center,” write Rabobank Commodities Strategist Ryan Fitzmaurice in a note.
“The situation on the ground in China appears to have worsened with large numbers of stores closing and large-scale transportation shut-downs put in place to prevent further contagion.”
US oil prices settled 1.1% lower at $51.56 per barrel on Friday.
Traditional safe haven assets had a better week. Investors tend to pile into assets like gold, US Treasury bonds or the Japanese yen in times of trouble because they are considered safer.
Gold prices on Thursday settled at their highest level since April 2013, as the precious metal benefited from the global flight to safety. On Friday, prices settled little changed at $1,582.90 an ounce.
Meantime, 10-year Treasury yields dropped to their lowest level since October, as demand for safe bonds rose. (Prices and yields move opposite to each other.) The 10-year yield stood at 1.51% on Friday.
Justified panic?
The big question is how much longer the coronavirus outbreak will last and how many people it will sicken.
Analysts expect it have an impact on consumer spending in China. Across the country, scores of businesses have temporarily closed as a precaution and travel and tourism have slowed. Depending on how long businesses stay closed as a precaution, the broader economy could suffer as well in the first quarter.
China is the second-largest economy in the world and widely considered the engine of worldwide growth, which is already in a somewhat fragile state.
But quarantining patients, flight cancellations and border controls could ultimately prove effective in containing the outbreak.
“In our base case, we expect the outbreak of the virus not to cause a global economic slowdown, and as such risk assets should stay well supported over the next six months,” said Mark Haefele, chief investment officer at UBS Global Wealth Management.
While the virus’ impact on travel and consumer spending will show up in the short-term data, many expect the Chinese government to roll out more stimulus in the months to come. Along with the rebound in pent-up consumer demand this could deliver a rebound in the months to come, Haefele said, who expects the Chinese economy to grow by 5.5% this year.
