Traders sought safety in U.S. government bonds, gold and high-dividend stocks like utilities and real estate
The Dow Jones Industrial Average slumped more than 1,000 points on February 24 in the worst day for the stock market in two years as investors worry that the spread of the viral outbreak that began in China will weaken global economic growth.
Traders sought safety in U.S. government bonds, gold and high-dividend stocks like utilities and real estate. The yield on the 10-year Treasury fell to the lowest level in more than three years.
Technology stocks accounted for much of the broad market slide, which wiped out all of the Dow’s and S&P 500 gains for the year.
Also read: COVID-19 scare drags equities
"Stock markets around the world are beginning to price in what bond markets have been telling us for weeks that global growth is likely to be impacted in a meaningful way due to fears of the coronavirus,” said Chris Zaccarelli, chief investment officer for Independent Advisor Alliance.
Investors looking for safe harbors bid up prices for U.S. government bonds and gold. The yield on the 10-year Treasury note fell sharply, to 1.37% from 1.47% late Friday. It was at 1.90% at the start of the year.
The slump in U.S. indexes followed a sell-off in markets overseas as a surge in cases of the disease in South Korea and Europe rattled investors.
The viral outbreak threatens to crimp global economic growth and hurt profits and revenue for a wide range of businesses. Companies from technology giant Apple to athletic gear maker Nike have already warned about a hit to their bottom lines. Airlines and other companies that depend on travelers are facing pain from cancelled plans and shuttered locations.
Technology companies were among the worst hit by the sell-off
Banks were also big losers
Airlines and cruise ship operators also slumped
Gilead Sciences climbed 4.6% and was among the few bright spots. The biotechnology company is testing a potential drug to treat the new coronavirus. Bleach-maker Clorox was also a standout, rising 1.5%.
Utilities and real estate companies held up better than most sectors. Investors tend to favor those industries, which carry high dividends and hold up relatively well during periods of turmoil, when they’re feeling fearful.
The rotation into defensive sectors has made utilities and real estate the biggest gainers this year, while technology stocks have lost ground.
A screen displays the Dow Jones Industrial Average after the closing bell on the floor at the New York Stock Exchange (NYSE) in New York, U.S., February 24, 2020.
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"The yields have been moving lower all year, so that’s providing a tail wind for utilities, for real estate,” said Willie Delwiche, investment strategist at Baird. “In the face of this heightened uncertainty, especially if it’s centered overseas, tech is going to bear some of the brunt of that because it’s been so popular, because it’s done so well, and because it has so much exposure to Asia.”
In the eyes of some analysts, Monday’s tank job for stocks means they’re just catching up to the bond market, where fear has been dominant for months.
U.S. government bonds are seen as some of the safest possible investments, and investors have been piling into them throughout 2020, even as stocks overcame stumbles to set more record highs.
The 10-year yield on Monday was near its intraday record low of 1.325% set in July 2016, according to Tradeweb. The 30-year Treasury yield fell further after setting its own record low, down to 1.83% from 1.92% late Friday.
Traders are increasingly certain that the Federal Reserve will cut interest rates at least once in 2020 to help prop up the economy. They’re pricing in a nearly 95% probability of a cut this year, according to CME Group. A month ago, they saw only a 68% probability.
In other commodities trading Monday:
The Dollar fell to 110.74 Japanese yen from 111.62 yen on Friday. The Euro weakened to $1.0842 from $1.0858.
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