Stocks rose sharply on Wall Street Monday, clawing back a small part 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 2.7%, placing in on track for its best day since January 2019. The S&P 500 is coming off a weekly loss of 11.5%, its worst since October 2008 during the global financial crisis.
Despite the pickup in stocks, the bond market continued to signal worries among investors, who continued to favor low-risk assets. Bond prices climbed, pushing yields to more record lows. The yield on the 10-year Treasury note fell to 1.09% from 1.12% late Friday. That yield is a benchmark for home mortgages and many other kinds of loans.
Gold, another traditional safe-haven asset, rose 1.8%.
“We just got to an extremely oversold situation on Friday,” said Sam Stovall, chief investment strategist at CFRA. “Investors basically overdid the carnage and, as a result, set ourselves up for at least a near-term, reflex rally.”
The Dow climbed 760 points, or 2.9%, to 26,170 as of noon Eastern time. The S&P 500 index rose 2.7% and the Nasdaq gained 2.8%.
European benchmarks were mostly higher. The price of U.S. crude oil was up 5.2%.
Last week’s rout knocked every major index into what market watchers call a “correction,” or a fall of 10% 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.
Global financial markets have been rattled by the virus outbreak that began in central China and has been shutting down industrial centers, 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.
Two new surveys showed a sharp drop in Chinese manufacturing in February as anti-virus controls shut down the world’s second-largest economy, but companies are confident activity will revive following government stimulus efforts.
Big technology companies like Apple are still among the most vulnerable due to disruptions in supply chains and business closures in China, but the sector led the way higher Monday. Apple climbed 6.1% and Microsoft rose 3.1%.
Shoppers stocking up on everyday goods as fear over the coronavirus’ spread hits consumers helped lift shares in household goods companies. Costco jumped 8.9%. Walmart rose 6.5%. Procter & Gamble gained 3.2%.
Stocks in travel-related companies have been among the hardest-hit as the outbreak has led to canceled flights and disrupted vacation plans. Cruise operators continued to pile up losses Monday. Royal Caribbean Cruises fell 2.4%, Norwegian Cruise Line dropped 6.8% and Carnival fell 4.1%.
American Airlines was down 4.5% and Delta Air Lines fell 1.4%.
Governments are taking increasingly drastic measures as they scramble to contain the virus, and major central banks have sent signals that they’re ready to help cushion the economic fallout from the outbreak.
Stimulus hopes helped shore up markets in Asia Monday. European markets had some bumps following a downbeat economic growth forecast before turning higher.
The Organization for Economic Cooperation and Development warned that the global economy could shrink in the first quarter of this year as a result of the outbreak. It expects the global economy to grow by 2.4% this year, half a percentage point less than it previously thought. The OECD also warned growth could be as low as 1.5% if the virus lasts long and spreads widely.
The OECD’s bleak assessment sidelined budding hopes in the markets that the world’s central banks, particularly the U.S. Federal Reserve, could be stung into action and cut interest rates or provide financial liquidity.
On Friday, Fed chairman Jay Powell said the central bank stood ready to help the economy if needed. Investors increasingly expect the Fed to cut rates at its next policy meeting in mid-March, possibly even before. His hint of looser policy weighed on the dollar.
Bank of Japan Governor Haruhiko Kuroda likewise issued a statement Monday, after an early plunge in share prices, saying the central bank “will closely monitor future developments, and will strive to provide ample liquidity and ensure stability in financial markets through appropriate market operations and asset purchases.”
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% higher, while the Shanghai Composite index rose 3.2%. The benchmark for the smaller exchange, in Shenzhen, jumped 3.8%, while South Korea’s Kospi climbed 0.8%. The Hang Seng in Hong Kong climbed 0.6%.
The economic fallout of the outbreak is becoming increasingly evident in China, which has seen most of the 90,000 or so virus cases worldwide. The latest data showed China’s manufacturing plunged in February as anti-virus controls shut down much of the economy.
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%. On Monday, benchmark U.S. crude was up $1.89 to $46.65 per barrel. Brent, the international standard, rose $1.88 to $51.55.
In other trading, gold, another safe haven for investors, jumped $26.20 to $1,592.90 per ounce, silver rose 1.7% to $16.74 per ounce.