U.S. stocks finished lower Thursday, after clawing back from steep late-morning losses, as investors struggled to find their footing amid uncertainty about the impact of China’s coronavirus epidemic.
Although investors have been heartened by daily reports of a slowing rate of the spread of the COVID-19 disease, the spread of virus outside China is sparking some anxiety, analysts said.
How did benchmarks perform?
The Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA -4.06% briefly fell below 29,000, but closed down 128.05 points, or 0.4%, at 29,219.90, after hitting an intraday low at 28,959.65. The S&P 500 /zigman2/quotes/210599714/realtime SPX -3.37% lost 12.92 points, or 0.4%, to end at 3,373.23. The Nasdaq Composite Index /zigman2/quotes/210598365/realtime COMP -3.79% shed 66.21 points, or 0.7%, to settle at 9,750.96, after hitting an intrasession nadir at 9,636.94.
The small-cap Russell 2000 index /zigman2/quotes/210598147/delayed RUT -4.09% , meanwhile, added 3.5 points, or 0.2%, to finish at 1,696.07.
What drove the market?
Stock markets settled lower after partially recovering from a midday pullback as investors found few reasons to drive equity benchmarks to fresh highs, with the declines being attributed to lingering jitters about the impact of epidemic in China.
“I think investor are starting to question the idea that the economic impact of the epidemic is going to be only transitory,” said Adam Phillips, director of portfolio strategy at EP Wealth Advisors, in an interview with MarketWatch, noting that all three major stock indexes on Thursday still were less than 1% from their all-time highs.
“That begs the question: is the whole impact of the coronavirus baked in? We may have lower to go here, over the short-term,” Phillips said.
Morgan Stanley /zigman2/quotes/209104354/lastsale MS -4.76% also announced it would buy E-Trade Financial Corp. /zigman2/quotes/205731930/lastsale ETFC -5.06% in an all-stock deal valued at $13 billion. Shares of E-Trade surged 21.8%, while those for Morgan Stanley fell 4.6%.
That announcement, however, came against the backdrop of deaths from COVID-19 outside of China. A report from South Korea’s Yonhap News Agency said the infection had claimed its first life, and the mayor of the South Korean city of Daegu urged its 2.5 million people to refrain from going outside, according to the Associated Press. Reports indicate that cases of the disease in South Korea have more than doubled to 104 in a day, with 35 additional cases cropping up in Daegu on Thursday.
“We’ve had a six-month uptrend,” Joe Saluzzi, co-head of equity trading at Themis Trading, told MarketWatch about the midday slump. “Certainly this was a warning shot across the bow for everyone to wake up a little. You can sell off in the middle of the day,” he said.
Shares of Intel Corp. /zigman2/quotes/203649727/lastsale INTC -5.71% , Microsoft Corp. /zigman2/quotes/207732364/lastsale MSFT -4.11% , Apple Inc. /zigman2/quotes/202934861/lastsale AAPL -4.14% and other technology companies with exposure to China and South Korean manufacturing led the losses Thursday. The U.S. dollar /zigman2/quotes/210598269/delayed DXY -1.05% also climbed for a third session against major currencies, pressuring exporters, as the currency was viewed as a haven.
Earlier in the session, U.S. equity benchmarks briefly punched into positive territory, amid a burst of corporate deal activity that pointed to optimism about the domestic economy. Meanwhile, U.S. corporate earnings for the fourth quarter also have quelled some fears that stock gains have come purely on the back of momentum and speculation rather than fundamentals, like earnings.
“We now have Q4 results from 411 S&P 500 members that combined account for 88.6% of the index’s total market capitalization. Total earnings for these 411 index members are up +1.1% from the same period last year on +4.6% higher revenues,” wrote Sheraz Mian, research director at Zacks, in a note.
Even so, Thursday’s action comes as a reminder of how quickly sentiment can shift to pressure stocks lower, with the uncertainty of epidemic injecting some volatility into markets, even as China attempts to pre-empt the pain.