Stocks Extend Drop as Anxiety About Virus Fallout Returns

U.S. stocks and bond yields dropped Thursday, continuing a painful stretch of market turbulence as investors around the world remain jittery about the economic fallout from the coronavirus outbreak.

The Dow Jones Industrial Average fell more than 950 points, or 3.5%, erasing much of the gains notched Wednesday as losses accelerated midday. A strong Super Tuesday performance by former Vice President Joe Biden and growing signs of a coordinated response to the coronavirus had driven a sharp rally in U.S. stocks.

That enthusiasm quickly dissipated Thursday as the S&P 500 fell 3.4%. The tech-heavy Nasdaq Composite shed 3%.

Losses in the stock market were broad, with all 11 of the S&P 500’s sectors falling in midday trading. As investors fled stocks, the rush for traditionally safer assets continued, sending Treasury yields falling as mortgage rates hit a record low.

Thursday’s moves continued what has been a dizzying week on Wall Street. Sharp stock swings up and down have dominated, continuing a bout of volatility that led last week to the worst selloff since the financial crisis.

“For years it was ‘buy the dip’, ‘buy the dip’, ‘buy the dip’,” said JJ Kinahan, chief market strategist at TD Ameritrade. “It’s very unsettling for people to see these kinds of moves everyday.”

The S&P 500 is on track to move up or down at least 2% for the fourth consecutive session, the longest such stretch since August 2011, according to Dow Jones Market Data. That’s when the European debt crisis rocked markets.

Some investors said they expected the stock gyrations to continue, with much remaining unknown about how far the coronavirus will spread and its ramifications on economic growth around the globe.

The outlook for corporate earnings and economic growth this year has darkened, weighing on stocks. Many have been worried that the virus will harm consumer sentiment and business investment around the world.

As a result, investors have been trying to rejigger their outlooks for stock valuations, leading to some of the big moves in the market, analysts said. The recent selloff has been a wake-up call for many investors after years of steadily climbing markets.

Investors will analyze fresh economic data this week for signs of wilting growth. Data on Thursday showed that U.S. factory orders fell in January. New orders for manufactured goods decreased 0.5%, the Commerce department said, more than what economists surveyed by The Wall Street Journal had expected.

On Friday, investors will be parsing the monthly jobs report to see if U.S. hiring remained strong in February. The number of Americans applying for first-time unemployment benefits fell last week, the Labor Department said Thursday, suggesting anxiety about the spread of the coronavirus haven’t yet affected layoffs.

The stock decline Thursday suggests that steps by the Federal Reserve and U.S. lawmakers this week to bolster economic growth are failing to assuage investors.

Health authorities are warning that it may be impossible to fully contain the pathogen as infections are spreading within many communities. Meanwhile, steps taken to halt the outbreak have curtailed travel and business activity in the epicenters of the disease.

Investors are betting on more interest-rate cuts later this year,

CME Group

data show. The Federal Reserve executed an emergency half-percentage-point rate cut earlier this week, its first such rate change since the 2008 financial crisis.

“You can cut rates to zero and the virus could continue to spread,” said Amy Kong, chief investment officer at Barrett Asset Management. “They can’t control the virus.”

As stocks fell, investors sought the relative safety of government bonds, pushing the yield on the benchmark 10-year U.S. Treasury note down to 0.920%, from 0.994% at Wednesday’s close. Yields fall as bond prices rise.

The falling yields reflect high anxiety in markets as investors seek traditionally safer investments. They also have wide-ranging effects on borrowing costs and bank profitability. Shares of financial companies were some of the hardest hit in the stock market Thursday. Falling yields can crimp profits for big banks.

Meanwhile, mortgage rates fell to their lowest level on record Thursday as yields fell.

European stocks also fell, with the pan-continental Stoxx Europe 600 index down 1.4%. The basic resources sector and aerospace and defense companies were among the hardest hit.

U.S. stocks are poised to remain turbulent with the Cboe Volatility Index, or VIX, climbing above 35. The index, sometimes known as Wall Street’s fear gauge, last week topped 40 to hit its highest level since 2011.

With volatility elevated and gauges of investor confidence low, markets are likely to keep swinging, according to Olivier d’Assier, head of applied research for the Asia-Pacific region at financial analytics firm Qontigo.

“We are going to be stuck in this for a while” Mr. d’Assier said. “You’ve got short-term traders buying on the stimulus and then you have medium- and long-term investors de-risking.”

Travel and leisure stocks continued to take a beating.

Norwegian Cruise Line Holdings

fell about 13%, while

Royal Caribbean Cruises

dropped 16% as travelers continue to back out of planned cruises because of virus fears.

American Airlines

retreated 9.7%.

Alaska Air

fell 10.4% and was on track to close at its lowest level since at least October 2014.

In contrast, most Asian markets rose Thursday, with the Shanghai Composite Index and Hong Kong’s Hang Seng Index both closing up around 2%.

Traders on the floor of the New York Stock Exchange Thursday. Investors have been grappling with the spreading coronavirus and the extent to which it will harm consumer sentiment and business investment.



Photo:

andrew kelly/Reuters

In commodities, Brent crude, the global oil benchmark, wavered between gains and losses, edging down 0.6% in recent trading. OPEC has reached a preliminary agreement to cut crude output amid a global glut and eroding demand, The Wall Street Journal reported. The collective plan, in response to the virus outbreak, still needs to be approved by Russia.

“In order for this to succeed, they need Russia to be onboard or they would just pass over market share to a major competitor,” said Ole Hansen, head of commodity strategy at Saxo Bank.

More on the Coronavirus’s Impact on Markets and Businesses

Write to Gunjan Banerji at Gunjan.Banerji@wsj.com and Avantika Chilkoti at Avantika.Chilkoti@wsj.com

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