U.S. stocks and bond yields tumbled Monday, extending a global rout after a sharp drop in crude prices intensified concerns about a global recession.
The Dow Jones industrial average tumbled 1,400 points, paring initial losses after dropping more than 2,000 points in morning trading. The Standard & Poor’s 500 teetered on the brink of a bear market, typically defined as a fall of at least 20% from a recent high. The broad index was off 17% from its Feb. 19 record after sinking 5.5% on Monday. The technology-heavy Nasdaq Composite dropped 5.5%.
Contracts for the S&P 500 index hit a 7% daily down limit shortly after the opening bell, triggering a halt in trading for 15 minutes.
The New York Fed Monday said it will step up its cash injections into the financial system to prevent the kind of cash shortages that pushed up the central bank’s key short-term interest rate above its target range last fall. Over the next few days, the Fed will increase one kind of loan from $100 billion to $150 billion and another from $20 billion to at least $45 billion.
While the loans largely have represented technical adjustments and are scheduled to be phased out this spring, Barclays said in a research note that this move likely “is driven more by deteriorating market sentiment and recession risks.”
Global stocks were pummeled after crude prices plunged as much as 30%, briefly putting oil prices on pace for their worst losses since the start of the 1991 Gulf War.
That rattled investors who were already contending with economic disruptions from the deadly coronavirus. The outbreak has infected more than 110,000 people globally, with more than 500 infections reported in the U.S.
Bond yields slid to historic lows, with investors flocking to safe haven corners of the market as concerns have grown the virus is going to severely damage economic growth.
“Every major stock market is getting hammered as oil prices plunge due to a price war following the breakdown of Saudi Arabia’s oil-cutting alliance with Russia over the weekend,” Nigel Green, chief executive and founder of financial consultancy deVere Group, said in a note.
“The ultimate impact that the oil price war will have on an already vulnerable world economy that’s struggling to cope with the spread of coronavirus remains unknown,” Green says.
The latest melt down in the energy market raises the possibility of stocks falling into bear market, according to Peter Cardillo, chief market economist at Spartan Capital Securities.
“Oil is in a free fall market situation after Russia created an oil war, raising the odds of a global recession,” Cardillo said in a note.
Saudi Arabia’s decision came after OPEC failed to strike a deal with its allies on a cut to oil production. An agreement would have contained the plunge in the price of crude caused by the virus outbreak’s disruption to world business, analysts say.
U.S. oil prices dropped 16% to $34.69 per barrel, paring losses after sliding 30% overnight. Brent crude futures, the international benchmark, dropped 18% to $37.17 per barrel.
The 10-year Treasury yield, which falls when investors are worried about a weaker economy, resumed its slide, falling to 0.318%. The benchmark is used as a barometer for mortgage rates and auto loans.
In Europe, London’s FTSE 100 sank 6.6% and Frankfurt’s DAX tumbled 7%. France’s CAC 40 lost 7.1%.
Asian stock markets plummeted overnight. Japan’s Nikkei 225 slid 5.7% while Australia’s S&P/ASX 200 shed 5.8%. Hong Kong’s Hang Seng index lost 4%.