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The worst one-day decline in U.S. stocks since 2008 rattled markets yesterday and ushered in a dangerous new phase to a public health crisis that is threatening to become a global economic disaster. Italy imposed nationwide restrictions on travel, South Korea put limits on short-selling and investors looked for signals that policymakers in the U.S. and elsewhere are prepared to act aggressively to contain the financial fallout.
President Trump floated economic stimulus measures like a payroll tax cut and legislation to protect hourly workers who miss work because of the coronavirus. And an unusual joint statement by America’s financial regulators urged lenders to “work constructively with borrowers and other customers in affected communities.” The Fed also suggested giving banks leeway if they bend the rules to help affected customers. Treasury Secretary Steven Mnuchin said, “This is not like the financial crisis where there is no end in sight.”
The administration invited Wall Street executives to the White House on Wednesday, with attendees expected to include representatives from major banks, including JPMorgan Chase, Bank of America, Goldman Sachs and Morgan Stanley. (JPMorgan’s Jamie Dimon, who’s recovering from heart surgery, will send a top lieutenant, Gordon Smith.)
The moves appeared to revive the markets. S&P futures are up this morning, as is the price of crude oil — the catalyst to yesterday’s sell-off. In a note to clients this morning, Paul Donovan, the chief economist at UBS Wealth Management, attributed the bounce to investors feeling “presumably relieved the administration is noticing the problem.” And observers were at least pleased that stock market protections like trading circuit breakers worked as designed.
There’s still plenty of reason for caution. Democratic lawmakers appeared cool to some of Mr. Trump’s ideas, like targeted tax cuts for certain industries, and have enormous negotiating leverage over spending matters. There are also questions about whether the E.U. — traditionally criticized for acting slowly in crises — can get its act together quickly enough. And the fight between Saudi Arabia and Russia over oil production, which helped set off yesterday’s plunge in oil prices, continued this morning as the Saudis prepared to flood the market.
Other ways the coronavirus is hitting business: An employee at Steve Cohen’s Point72 hedge fund has tested positive, as have a London-based employee of KKR and a Deutsche Bank worker in Frankfurt. The S.E.C. told employees to work remotely after an employee showed symptoms of infection. And the NYT is keeping track of conferences, festivals and other cultural events that have been postponed or canceled.
What people are saying
• “Now that the virus has a foothold in so many countries, the threat of a pandemic has become very real.”— Tedros Adhanom Ghebreyesus, the World Health Organization’s director-general
• “Good for the consumer, gasoline prices coming down!” — President Trump, on Twitter
• “Low gasoline prices don’t do much for you if schools are closed, you cancel your trip or you’re working from home because of the virus.” — Daniel Yergin, an energy historian and vice chairman of IHS
• “People you trust, people you probably voted for, have spent weeks minimizing what is clearly a very serious problem.” — Tucker Carlson, the Fox News host, on air yesterday
• “If you’re asking for when the financial markets see peak virus, I think it’ll be about a month from now.” — Kyle Bass of Hayman Capital Management
• “We’re going to lose a chunk of activity, and then we’ll grow out of it. That’s the good news. But are we going to boom out of it or crawl out of it? Crawling is looking more likely.” — Julia Coronado, the president of MacroPolicy Perspectives
• “It’s temporary, but it’s a tornado-like headwind, so it’s going to be powerful for a period of time.” — Rick Rieder, the chief investment officer for global fixed income at BlackRock
• “There are no winners here. Only degrees of losing.” — Charles O’Shea, the lead retail analyst at Moody’s
• “We’ve seen aggressive shopping across the country in our stores.” — Brian Cornell, the C.E.O. of Target. Over the weekend, Target started limiting the quantity of hand sanitizer and disinfectant wipes that customers can buy.
• “It has a very nice floral bouquet … I detect lilac, hydrangea, tulips.” — Gov. Andrew Cuomo of New York, at the unveiling of NYS Clean, a hand sanitizer produced by inmates at the Great Meadow maximum security prison north of Albany.
Yesterday, in photos
Here’s what the public thinks was happening in the markets yesterday: an anguished trader — in this case, Peter Tuchman, perhaps the New York Stock Exchange’s most-photographed responder to bad news — battling volatile stocks.
By the numbers
Monday was the 11th anniversary of the start of the current bull market, and to celebrate, U.S. stocks came very close to slipping into bear territory (defined as a 20 percent fall from the latest peak). Before today’s open, the S&P 500 was down 19 percent from its mid-February peak. If stocks manage to rise from here, the bull market lives on — 4,048 days and counting.
Seeking a safe place to park their money, investors have piled into U.S. government bonds. At one point yesterday, the 30-year Treasury yield fell so much that the entire curve at one point traded below 1 percent, less than the Fed’s overnight benchmark rate. It’s a sign of extreme stress and a signal that markets think significant rate cuts are on the cards.
People are worried about leveraged loans, which lenders extend to highly indebted companies. If borrowers in this $1.2 trillion market get into cash-flow problems because of lost activity due to the coronavirus, it could set off a cascade of defaults and put bank balance sheets under pressure.
“You knew it would be bad, but this is something,” analysts at S&P said about the recent drop in its index tracking the leveraged loan market.
But it’s not all bad. Traditional havens like gold, the Japanese yen and Swiss franc — and, as noted, U.S. government bonds — have held up during the coronavirus turmoil.
And for what it’s worth, bitcoin is up around 10 percent for the year, even though it has fallen sharply in recent weeks.
Where to get more information
By following some basic steps, you can help reduce your risk of infection and do your part to protect others. Read about how to prepare in our guide. And if you feel sick or have questions about symptoms, we try to answer the most common queries.
In other news
• Twitter struck an agreement with the activist investor Elliott Management and the private equity firm Silver Lake that will keep Jack Dorsey as C.E.O., for now. (NYT)
• The insurance brokerage Aon agreed to buy a rival, Willis Towers Watson, for $30 billion in stock. (WSJ)
• Betsy Duke, Wells Fargo’s chairwoman, resigned amid pressure from lawmakers. (NYT)
• The stock-trading app Robinhood went down yesterday. Again. (Bloomberg)
• “Is Zero Hedge a Russian Trojan Horse?” (New Republic)
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