Wall Street heads for worst quarter since 2008

US stocks were on track for their biggest quarterly drop since the financial crisis on Tuesday as they wobbled between positive and negative territory in their final trading session of the period.

A rally over the past week, as investors warmed to the emergency actions of global governments and central banks, has saved Wall Street from notching up its worst quarter since the Great Depression, but stocks still remain down 18 per cent since the start of the year.

The S&P 500 was up 0.3 per cent shortly before lunchtime in New York, having opened in negative territory. The tech-heavy Nasdaq Composite fared best, up 1.3 per cent, while the Dow Jones Industrial Average added 0.3 per cent.

Equities in Europe regained their poise, having taken some comfort on Tuesday from tentative signs the Chinese economy is stabilising after Covid-19 lockdowns stifled activity in February. 

For the US, though, a new forecast for gross domestic product published by Goldman Sachs suggested a 34 per cent annualised contraction in the second quarter, indicating it is still to see the worst of the crisis. The bank is now predicting a US unemployment rate of 15 per cent by mid-year.

The broad MSCI measure of developed and emerging market equities has shed a fifth of its value over the past three months in the sharpest drop since 2008. London’s FTSE 100 has fared worse, down 25 per cent in its heaviest rout since 1987. 

“This bear market has been unusual, not because of the scale of the decline but rather because of the speed and the volatility,” said Peter Oppenheimer, chief equity strategist at Goldman Sachs. 

Wall Street stocks took just 16 days to tumble 20 per cent from their record high, easily eclipsing the previous record for swiftest tumble into a bear market that was set in 1929 at 44 days, noted Mr Oppenheimer.

The Europe-wide Stoxx 600 and London’s FTSE 100 were up 1.5 per cent and 0.9 per cent, respectively, in afternoon trading in Europe. China’s CSI 300 climbed 0.3 per cent, with Hong Kong’s Hang Seng up 1.9 per cent. 

Mr Oppenheimer said there was “encouraging evidence coming out of China and some other countries as production and demand start to recover”. 

China’s National Bureau of Statistics purchasing managers’ index reading of 52 marked a sharp jump in manufacturing activity in March from a record low of under 36 in February. Any reading above 50 indicates growth.

“The shape is almost a perfect V and offers a glimpse of hope that economic effect might be shortlived,” said Daniel Bergvall, economist at SEB.

Investors have kept a close eye on China’s recent PMI readings for signs of how the world’s second-biggest economy is faring and the extent to which large-scale stimulus efforts have succeeded. 

Mr Bergvall said investors had already priced in what is expected to be a historic contraction in global output during the second quarter, which begins on Wednesday, and are instead looking for signs on how and when the world’s economy will recover. 

“Sentiment has recovered substantially after the stimulus and slowing contagion pace,” said Ken Cheung, chief Asia currency strategist at Mizuho Bank, who said the figures could be “an encouraging sign of China’s recovery ahead”.

Analysts warned against reacting too exuberantly to the numbers. “This does not mean that output is now back to its pre-virus trend,” said Julian Evans-Pritchard, senior China economist at Capital Economics. “It simply suggests that economic activity improved modestly relative to February’s dismal showing.” 

Elsewhere, oil prices rose after a tumultuous start to the week in which West Texas Intermediate, the US marker, dropped below $20 a barrel. WTI was up 2.9 per cent at $20.66 a barrel on Tuesday while international benchmark Brent crude gained 0.3 per cent to $22.80.

Sovereign bond yields trimmed their rise from earlier in the session, leaving the 10-year US Treasury yield up 0.01 percentage point to 0.68 per cent. Yields fall as prices rise.