Jan 31, 2020 - Economy & Business

Coronavirus fears slam the stock market

Photo: Johannes Eisele/AFP via Getty Images

Stocks saw the worst sell-off in months on Friday: the Dow Jones Industrials Average dropped 603 points (2.1%), while the S&P 500 and the Nasdaq declined 1.7% and 1.5%, respectively.

Why it matters: Despite a few jitters, the stock market had until now mostly brushed off fears about the coronavirus (the bond market, though, has not) as stellar earning results from big names like Apple, Microsoft and Amazon took center stage.

The big picture: As the outbreak worsens, so do concerns that it could hit the global economy right as prospects for growth were beginning to look up.

Details: The U.S. Treasury yield curve inverted on Monday and again on Friday, oil prices have fallen more than 10% in the past two weeks and the price of copper, a bellwether of economic health, went on a record 12-day losing streak.

The bottom line: Bond and commodity markets have been clearly signaling distress all week. The inverted yield curve has happened before every U.S. recession in the last 50 years and has shown a false positive only once.

  • Economists at the Federal Reserve call it the "best summary measure" of economic downturn, and yields on the benchmark 10-year Treasury note have fallen by a staggering 38 basis points over the past month.
  • Copper is seen as a barometer of the economy's health because of its use in homebuilding and commercial construction

Go deeper: What's happening with the coronavirus

Go deeper

The yield curve makes its deepest inversion since October

Data: U.S. Treasury; Chart: Danielle Alberti/Axios

The U.S. Treasury yield curve inverted again, with 3-month Treasury bills holding a higher yield (1.56%) than 10-year Treasury notes (1.46%).

The big picture: This is the second time the yield curve has inverted in a matter of weeks, and the third time in a matter of months. It's the deepest the yield curve has been inverted since Oct. 9.

Coronavirus doesn't tell the full story behind Dow's plunge

Photo: Andrew Burton/Getty Images

As someone has certainly told you by now, the Dow fell by more than 1,000 points yesterday, its worst day in more than two years, erasing all of 2020's gains. Most news headlines assert that the stock market's momentum was finally broken by "coronavirus fears," but that's not the full story.

What's happening: The novel coronavirus has been infecting and killing scores of people for close to a month and, depending on the day, the market has sold off or risen to record highs.

Copper is on life support

Data: Investing.com; Chart: Axios Visuals

The price of copper fell for a record 12th straight session on Thursday, falling to its lowest price on the New York Mercantile Exchange since September and its lowest on the London Metal Exchange since October.

Why it matters: Known as Dr. Copper, the metal is seen as a barometer of the economy's health because of its use in homebuilding and commercial construction.