US stocks faltered on Friday after three days of gains, as investors refocused on the wide economic fallout from the coronavirus pandemic despite the passage of a historic US stimulus bill by the House of Representatives.
The S&P 500 fell roughly 3 per cent in afternoon trading in New York, even as the relief package headed to President Donald Trump’s desk to be signed into law.
“There is no doubt the market loved the $2tn stimulus package, but now the rubber needs to actually meet the road,” said David Lafferty, chief market strategist at Natixis Investment Managers. “Getting this money into the hands of large firms . . . and into the hands of consumers isn’t as operationally easy as it sounds.”
The US sell-off extended losses seen globally. London’s FTSE 100 closed 5.3 per cent lower, also snapping three days of gains. Stock markets dropped across Europe, leaving the Stoxx 600 index of the region’s largest companies down 3.3 per cent.
Some haven assets rose on Friday, with the benchmark 10-year US Treasury yield falling 0.11 percentage points to 0.74 per cent. Yields fall as bond prices rise.
Strategists said there could be more pain to come following a violent sell-off over the past few weeks that prompted big investors to liquidate riskier holdings in favour of cash — especially now that the economic cost of the coronavirus pandemic is starting to become apparent.
The US, which overtook China this week to become the country with the highest number of infections, said on Thursday that jobless claims surged to a record 3.3m in the week ending March 21.
“We are only starting to get the numbers on how hard the virus has been on the economy,” said Marvin Loh, senior global markets strategist at State Street Global Markets. “We just got the first significant number yesterday, but that is just a marker. There is no comfort in saying that will be the worst number.” Investors should gear up for more wild price swings, he added.
The US stimulus deal “alleviated the panic”, according to Johanna Chua, an emerging Asia strategist at Citi. But she said the rally in US markets on Thursday had been unconvincing, given the dire economic background and growing rates of infection. “Many market participants view this ‘squeeze up’ in the markets as a bear market rally,” she said.
“Policy responses need to be big, bold and fast to keep companies alive until the health crisis fades, or otherwise there’ll be permanent damage to economies that will take years to recover from,” Nomura’s global markets strategists wrote in a note to clients.
Sentiment had been buoyant in Asia, however. Japan’s Topix stock index closed 3 per cent higher, taking its gains for the week to over 10 per cent. South Korea’s Kospi edged up 1.9 per cent while China’s CSI 300 index of Shanghai- and Shenzhen-listed stocks added 0.3 per cent. Australia’s S&P/ASX 200 closed down 5.3 per cent, erasing earlier gains.
Figures on Friday showed China’s industrial profits plunged nearly 40 per cent year on year in February — a drop of almost $60bn — while South Korean consumer sentiment fell to its lowest since 2009.
Analysts at ANZ forecast Asia’s gross domestic product growth could slow to 3.3 per cent this year, compared with more than 5 per cent in 2019. The economic damage could be even worse than feared, depending on how long the pandemic lasts, the analysts said.
“Despite some relief in equity markets over the week, the picture for the global economy and markets still looks bleak,” said Daniel Been, a strategist at ANZ in Sydney.