NEW YORK, Feb 24 (Reuters) - The S&P 500 fell more than 3% at the open on Monday, and the Dow Jones industrials plunged more than 800 points, as investors raced to safe-havens after a surge in coronavirus cases outside China stoked fears of a bigger impact to global economic growth.
A rise in cases in Iran, Italy and South Korea over the weekend added to fears of a pandemic. Gold rose to a seven-year high, U.S. Treasuries surged, pushing the 10-year yield to its lowest since July 2017, while the inversion between the 3-month and 10-year yields deepened, a classic recession sign.
COMMENTS: ANDREW RICHMAN, MANAGING DIRECTOR, FIXED INCOME STRATEGIES, SUNTRUST ADVISORY SERVICES, JUPITER, FLORIDA
It certainly puts a little more pressure on the Fed to lower rates. The fed has been on pause for a while, from an economic standpoint. What you see economically does not suggest you would have to change policy. You had some numbers last week that suggests we are not headed into a recession. The global effect of the coronavirus on the U.S. economy right now I dont think is significant, but well have to see. But the bond market signal to the Fed is, youre too tight and need to lower rates.
KEITH LERNER, CHIEF MARKET STRATEGIST, TRUIST/SUNTRUST ADVISORY, ATLANTA (from a research note)
"There remains a large degree of uncertainty surrounding the virus, and no one knows how this will ultimately play out. There is already a clear human tragedy to the victims and their families. From an economic perspective, this uncertainty places the expected modest uptick in global growth for 2020 at risk. From a market perspective, investors always invest with uncertainty, and the carousel of concerns continues. However, with stock prices and valuations still near cycle highs, the risk of a worsening virus outbreak has not been priced into the market to a great extent."
ART HOGAN, CHIEF MARKET STRATEGIST, NATIONAL SECURITIES CORP, NEW YORK
Investors are looking for harbors of safety. What did the decline (in Treasury yields) indicates is that investors are nervous. What we have seen over the last several days of trading on the equity side is money going into defensive sectors like utilities, and treasuries are no different. NITESH SHAH, DIRECTOR OF RESEARCH AT WISDOMTREE
"Go back a couple of weeks and markets were somewhat complacent, especially equity markets. They were rallying pretty strongly without any real fear of coronavirus spreading across the world and destroying demand as you may have seen in China."
"However, some people are reassessing the extent to which China itself is being damaged by the spread of the virus and more broadly, whether other parts of world will see contagion effects."
"People are taking a pause and cyclical assets are faltering, and that is favoring defensive assets like gold and Treasuries. Right now, there is a realization in the markets that it could be a lot worse, that it could be a pandemic." JAKOB CHRISTENSEN, HEAD OF EMERGING MARKET RESEARCH, DANSKE BANK
"The realization that the virus is a global phenomenon, along with weak data releases from Japan and the United States on Friday, has led to the negative mood (in emerging markets) on concerns that the global economy is in a fragile place. Uncertainties to global growth are bigger than what people assumed." SUBADRA RAJAPPA, HEAD OF US RATES STRATEGY, SOCIETE GENERALE, NEW YORK
On the impact of label ling to 'pandemic': Im not sure the labeling really matters. Theres more broad-based concern over the spread. Thus far it has been more contained within China and some Asian countries. I think markets are definitely shifting to a more cautious tone.
Its always a risk. But we dont have any clear data on what the impact is so far, and a risk is that the data we get is going to be somewhat backdated.
Most clients start off asking what we think of the impact of the coronavirus.
TEEUWE MEVISSEN, SENIOR MARKET ECONOMIST AT RABOBANK
The over optimism of early last week and the weeks before is being punished now. Clearly, markets in the euro zone did overshoot and now it's reckoning day."
"It seems to be pretty complicated to control this virus. On top of this, China is busy with getting workers back to factories. Which means that when people in China hit the streets again, we could see a reversal of the trends in new cases. The question is, what is China going to do then. Do you choose the economy and take the rise in new cases for granted? Thats very important in answering the question: is this the end of the bull market. Today makes it very clear that markets have been very much over-optimistic and that an already weakening economy will suffer quite a blow. Chances have certainly increased that we might on the brink of a reversal of the long-term trend. DAVID MADDEN, ANALYST, CMC MARKETS, LONDON The fear is that the situation is becoming global. The virus seems to be spreading throughout Asia, but also in Europe. There's a lot of fear that this is turning global. This isn't just an issue that's unique to China or even to a province within China. This could potentially be a global issue. And with that, we're seeing anything that's related to China coming under pressure: western luxury brands, mining companies, oil companies; they're all under pressure because of their China connection but also more domestically here in Europe. Airline stocks are being hit as well. The fear is that we could be looking at a scenario where this spreads aggressively in this part of the world too.
The fear is that it will get much worse much quicker. The economic impact is difficult to gauge, but it is going to be negative. It wasn't that long ago that the Euro STOXX 600 was at an all-time high. So traders have the perfect excuse to take profits and get out of stocks because it wasn't that long ago when they were at pretty lofty levels. It's extremely difficult to tell what the economic impact is going to be but, by and large, many companies are likely to be negatively impacted by that. And with that, people are going to be doing an Apple and will likely be downgrading their forecasts in the next few weeks.
NATWEST MARKETS (EMAIL)
"The severity of the market moves, in our view, has been aided by the low levels of market volatility heading into this event."
"And that lack of volatility around many assets, I would argue, continues to be because of the assumption of policy puts around the world. In the US, as we have written, I agree that this Fed has a very dovish reaction function. But also as we have written, this event is unique as a supply shock that monetary policy in my view has little hope of assisting. Last week we argued that the unique nature of the virus makes some risk assets vulnerable: If a US company (with a certain earnings stream priced in) cant source inputs because overseas factories are idled with workers sick or locked down in their homes, a fed funds rate at 1.5% or at 0.25% is irrelevant. If that supply shock persists, and leads to demand shortfalls (the US company then idles its workforce), policy can assist, though I would argue it would need to be fiscal not monetary. Admittedly we are not there yet in the US, but it is why you see emergency declarations and promises of fiscal action in places like South Korea. But overall, faith in the Fed bailing out equities should be questioned not because thats what they tend to do, but because what they can do doesnt do anything to fix the cause."
(Compiled by Alden Bentley)