Dow Ends 11-Year Bull Market as Coronavirus Defies Economic Remedies

A renewed plunge in financial markets on Wednesday ended an 11-year bull market for the Dow Jones industrial average as the economic threat posed by the coronavirus outbreak came into stark relief.

As policymakers on both sides of the Atlantic appeared unwilling or unable to mount an aggressive response, the Dow closed with a loss of nearly 6 percent. That brought its decline from its most recent peak less than a month ago to more than 20 percent — the definition of a bear market.

The broader S&P 500 was down nearly 5 percent for the day, but shy of bear territory.

The full economic toll of the outbreak — now officially a pandemic — will not be clear for months. But there is mounting evidence that it will be severe. Airlines are warning of empty planes and huge financial losses. A sharp drop in oil prices is threatening to put energy companies out of business and thousands of American drillers out of work. Supply-chain bottlenecks are forcing factories around the world to cut output, even as a slump in consumer confidence is raising doubts that there will be demand for their goods once production resumes.

Policymakers are struggling to respond effectively. A rate cut by the Federal Reserve last week failed to calm financial markets. A similar move by the Bank of England on Wednesday was equally ineffectual. Governments in Europe were struggling to manage their budgets even before the virus struck, limiting their ability to spend heavily to keep their economies afloat. And in the United States, which faces no such constraints, President Trump has resisted aggressive stimulus measures that many economists say are necessary to contain the damage.

“If the Trump administration and Congress can’t get it together quickly and put together a sizable and responsible package, then a recession seems like a real possibility here,” said Mark Zandi, chief economist for Moody’s Analytics. He said he saw a roughly 50 percent chance of a recession in the next year.

As recently as a week ago, few economists thought a recession was likely. Most thought that whatever damage the virus caused would be short-lived, and that the economy would experience a sharp, “V-shaped” recovery. Forecasts have become significantly more dour since then, however, as the virus has spread more widely in the United States and as the effects in Europe have become more pronounced.

Italy has essentially been put on lockdown, and Chancellor Angela Merkel of Germany said Wednesday that as much as 70 percent of her country’s population was likely to become infected. The World Health Organization officially declared the outbreak a pandemic, acknowledging its worldwide scope.

“Even if the virus situation improves, we’re looking at people just being very cautious about going back,” said Nariman Behravesh, chief economist for IHS Markit. “It’s going to take a while for people to feel comfortable to go back into large crowds, to get back on an airplane.”

Indeed, no amount of fiscal stimulus or interest-rate cuts will restore canceled flights or postponed events — nor, at a time when health officials are recommending “social distancing,” would policymakers want to. The only thing that could truly prevent economic damage or settle financial markets lies beyond the power of economic policymakers: getting the virus itself in check.

“I don’t think it’s something that conventional fiscal and monetary policy can solve,” said Lewis Alexander, chief U.S. economist at Nomura Securities in New York. “It’s not like if you just write a big enough check everything will be fine.”

But economists said there was still a window of opportunity to limit the damage and avoid the cascading ripple effects that could cause a recession. Targeted aid for affected industries could help prevent layoffs. Cash payments could allow people to keep spending even if their hours are cut or they miss work because of a quarantine.

That window could be closing. Consumer confidence in March suffered its largest single-month drop of Mr. Trump’s tenure in office, according to a new nationwide poll conducted for The New York Times by the online research firm SurveyMonkey. The decline was some of the first evidence that the outbreak — and the financial market turmoil it has caused — is threatening consumer spending, the linchpin of the decade-long economic expansion.

The decline in March could be a preview of larger confidence losses to come. The poll was conducted last week and completed on Sunday, before stock markets dropped 8 percent on Monday in a single day of virus-driven losses.

Adding to the challenge, the people most at risk of losing their jobs or hours are mostly service workers: hotel housekeepers, airport vendors, waiters and waitresses. Those workers are less likely than white-collar workers to have paid sick leave, and they are less likely to have the financial resources to weather a period of reduced income. That could worsen the impact on consumer spending, said Michelle Meyer, chief U.S. economist for Bank of America Merrill Lynch.

“That’s the part of the economy that is presumably most budget constrained, so they don’t necessarily have savings to draw down or lines of credit they can use,” she said. “An income shock in that population becomes a consumption shock more quickly and potentially more deeply.”

Efforts to fight the outbreak are likely to make the economic situation worse, at least in the short run.

The experience in other countries offers lessons for the United States. China appears to have been able to get its outbreak under control, but only through shutting down vast regions of the country. South Korea has won plaudits for its decisive response, but that too required huge disruptions to daily life and commerce. In Italy, the outbreak spiraled out of control until the country was forced to impose broad restrictions on movement.

“The virus is beatable, but the measures that are required to beat it are economy killers,” said Ian Shepherdson, chief economist for Pantheon Macroeconomics, a research firm.

The only way to kick-start the economy after such a vast disruption, Mr. Shepherdson said, was through a “blockbuster fiscal response.”

There is little evidence so far that such a response is coming. Mr. Trump is weighing a temporary elimination of the payroll tax, a measure with a big dollar figure — it could cost nearly $700 billion — but that would put only a trickle of extra cash into workers’ bank accounts. For people who lose their jobs as a result of the outbreak, a payroll tax cut wouldn’t help at all.