Chinese stocks tumbled nearly 8% after investors there got a chance to catch up to losses that already swept through other markets around the world.
Source: Associated Press
A security officer wearing a face mask walks in front of the Shanghai Stock Exchange building in Shanghai, Monday, Feb. 3, 2020. (AP Photo)
NEW YORK: Stocks rose in much of the world Monday and recovered some of their losses from earlier weeks, but markets are still far from giving the all-clear on the virus that has spread to more than 20 countries and infected more than 17,000 people.
Chinese stocks tumbled nearly 8% after investors there got a chance to catch up to losses that already swept through other markets around the world. Monday was the first day of trading in more than a week for the center of the viral outbreak, and the losses would likely have been bigger if not for moves by Chinese authorities, including the pumping of $173 billion into the financial system.
In the United States, meanwhile, a historical warning signal of recession in the bond market continued to flash red. The price of crude oil also kept sliding on worries that a global economy weakened by the virus will burn less fuel.
The S&P 500 rose 0.8%, as of 2 p.m. Eastern time, following its first back-to-back weekly losses of 1% since August. The Dow Jones Industrial Average rose 148 points, or 0.5%, to 28,405, and the Nasdaq composite was up 1.3%. All three indexes, though, remain 1.5% to 3.5% below their records set last month.
All the fears are the product of a growing uncertainty: Nobody knows how much the virus will ultimately hurt economies and corporate profits, let alone human lives, around the world. It has already shut factories in central China, halted some global air traffic and caused economists to cut their growth forecasts for China, the world’s second-largest economy.
The fears have also struck just as investors believed economic growth would re-accelerate around the world, thanks in large part to interest-rate cuts and other bold actions by the Federal Reserve and other central banks around the world. A report on Monday said U.S. manufacturing returned to growth in January for the first time in six months, but many investors paid little attention because it doesn’t fully reflect all the virus concerns.
“Think about what global central bankers are thinking about now,” said Emily Roland, co-chief investment strategist at John Hancock Investment Management. She imagined them saying: “Are you kidding me? We pumped so much liquidity into the economy last year, and now the yield curve is inverting again?”
A yield curve is a tool used by investors that sits in the dusty corners of the bond market. Markets don’t pay it much attention until it becomes inverted, a relatively rare occurrence that happens when short-term Treasurys offer higher yields than longer-term Treasurys. A rule of thumb says a recession maybe a year or so away when the three-month Treasury’s yield is higher than a 10-year Treasury’s, though it doesn’t have a perfect track record.
On Monday, the three-month yield was at 1.54%, above the 1.52% yield of the 10-year, which itself rose from 1.51% late Friday.
“Sentiment builds on sentiment, and there’s so much uncertainty right now,” Roland said. “We’re not ready to call the all-clear until we see a sustained re-acceleration not only in earnings estimates but also in the economic data.”
In the U.S. stock market, gains were relatively widespread on Monday with two stocks rising for every one falling. But nearly a quarter of the gain for the S&P 500 came from just two stocks: Microsoft and Google’s parent company, Alphabet.
These two, along with other tech behemoths, have increasingly been driving the market as the top five stocks in the S&P 500 account for roughly 18% of the index by market value. Alphabet will report its latest quarterly reports after markets close on Monday, while Microsoft reported many stronger-than-expected earnings last week.
Nike jumped 3.9% to help drive Dow Jones Industrial Average higher as investors continue to try to handicap how much its earnings will be hurt by the virus. It had dropped more than the rest of the market in earlier weeks because it depends on China not only to help make its shoes and athletic products but also to buy them. Nearly 18% of its revenue last quarter came from China.
European stock markets were also higher. France’s CAC 40 rose 0.5%, Germany’s DAX returned 0.5% and the FTSE 100 in London was up 0.6%.
The 7.7% loss for stocks in Shanghai was the headliner in Asia, but other markets were mixed. The Hang Seng in Hong Kong rose 0.2%, the Nikkei 225 in Japan lost 1% and the Kospi in South Korea was virtually flat.
Benchmark U.S. crude tumbled another $1.15, or 2.2%, to $50.41 per barrel on worries about demand. It had been above $63 toward the start of the year, before the virus outbreak. Brent crude, the international standard, fell $1.82, or 3.2%, to $54.80 per barrel.