The Dow Jones Industrial Average slumped more than 1,000 points Monday in the worst day for the stock market in two years as investors worry that the spread of a viral outbreak that began in China will weaken global economic growth.
Traders sought safety in U.S. government bonds, gold and high-dividend stocks like utilities and real estate. The yield on the 10-year Treasury fell to the lowest level in more than three years.
Technology stocks accounted for much of the broad market slide, which wiped out all of the Dow's and S&P 500's gains for the year.
More than 79,000 people worldwide have been infected by the new coronavirus. China, where the virus originated, still has the majority of cases and deaths. The rapid spread to other countries is raising anxiety about the threat the outbreak poses to the global economy.
"Stock markets around the world are beginning to price in what bond markets have been telling us for weeks – that global growth is likely to be impacted in a meaningful way due to fears of the coronavirus," said Chris Zaccarelli, chief investment officer for Independent Advisor Alliance.
The Dow lost 1,031.61 points, or 3.6%, to 27,960.80. At its low point, it was down 1,079 points.
The S&P 500 index skidded 111.86 points, or 3.4%, to 3,225.89. The Nasdaq dropped 355.31 points, or 3.7%, to 9,221.28 - it's biggest loss since December 2018.
The Russell 2000 index of smaller company stocks gave up 50.50 points, or 3%, to 1,628.10.
Investors looking for safe harbors bid up prices for U.S. government bonds and gold. The yield on the 10-year Treasury note fell sharply, to 1.37% from 1.47% late Friday. It was at 1.90% at the start of the year. Gold prices jumped 1.7%.
Crude oil prices slid 3.7%. Aside from air travel, the virus poses an economic threat to global shipping.
Benchmark crude oil fell $1.95 to settle at $51.43 a barrel. Brent crude oil, the international standard, dropped $2.20 to close at $56.30 a barrel.
The slump in U.S. indexes followed a sell-off in markets overseas as a surge in cases of the disease in South Korea and Europe rattled investors.
Germany's DAX slid 4% and Italy's benchmark index dropped 5.4%. South Korea's Kospi shed 3.9% and markets in Asia fell broadly.
South Korea is now on its highest alert for infectious diseases after cases there spiked. Italy reported a sharp rise in cases and a dozen towns in the northern, more industrial part of that country are under quarantine. The nation now has the biggest outbreak in Europe, prompting officials to cancel Venice's famed Carnival, along with soccer matches and other public gatherings.
There are also more cases of the virus being reported in the Middle East as it spreads to Iran, Iraq, and Kuwait, among others.
The viral outbreak threatens to crimp global economic growth and hurt profits and revenue for a wide range of businesses. Companies from technology giant Apple to athletic gear maker Nike have already warned about a hit to their bottom lines. Airlines and other companies that depend on travelers are facing pain from cancelled plans and shuttered locations.
Technology companies were among the worst hit by the sell-off. Apple, which depends on China for a lot of business, slid 4.8%. Microsoft dropped 4.3%. Banks were also big losers. JPMorgan Chase fell 2.7% and Bank of America slid 4.7%.
Airlines and cruise ship operators also slumped. American Airlines lost 8.5%, Delta Air Lines dropped 6.3%, Carnival skidded 9.4% and Royal Caribbean Cruises tumbled 9%.
Gilead Sciences climbed 4.6% and was among the few bright spots. The biotechnology company is testing a potential drug to treat the new coronavirus. Bleach-maker Clorox was also a standout, rising 1.5%.
Utilities and real estate companies held up better than most sectors. Investors tend to favor those industries, which carry high dividends and hold up relatively well during periods of turmoil, when they're feeling fearful.
The rotation into defensive sectors has made utilities and real estate the biggest gainers this year, while technology stocks have lost ground.
"The yields have been moving lower all year, so that's providing a tail wind for utilities, for real estate," said Willie Delwiche, investment strategist at Baird. "In the face of this heightened uncertainty, especially if it's centered overseas, tech is going to bear some of the brunt of that because it's been so popular, because it's done so well, and because it has so much exposure to Asia."
In the eyes of some analysts, Monday's tank job for stocks means they're just catching up to the bond market, where fear has been dominant for months.
U.S. government bonds are seen as some of the safest possible investments, and investors have been piling into them throughout 2020, even as stocks overcame stumbles to set more record highs. The 10-year yield on Monday was near its intraday record low of 1.325% set in July 2016, according to Tradeweb. The 30-year Treasury yield fell further after setting its own record low, down to 1.83% from 1.92% late Friday.
Traders are increasingly certain that the Federal Reserve will cut interest rates at least once in 2020 to help prop up the economy. They're pricing in a nearly 95% probability of a cut this year, according to CME Group. A month ago, they saw only a 68% probability.
Of course, some analysts say stocks have been rising in recent weeks precisely because of the drop in yields. Bonds are offering less in interest after the Federal Reserve lowered rates three times last year — the first such cuts in more than a decade — and amid low inflation. When bonds are paying such meager amounts, many investors say there's little real competition other than stocks for their money.
The view has become so hardened that "There Is No Alternative," or TINA, has become a popular acronym on Wall Street. Even with Monday's sharp drops, the S&P 500 is still within 4.2% of its record set earlier this month.
In other commodities trading Monday, wholesale gasoline fell 4 cents to $1.61 per gallon, heating oil declined 8 cents to $1.61 per gallon and natural gas fell 8 cents to $1.83 per 1,000 cubic feet.
Gold rose $27.80 to $1,672.40 per ounce, silver rose 35 cents to $18.87 per ounce and copper fell 3 cents to $2.59 per pound.
The dollar fell to 110.74 Japanese yen from 111.62 yen on Friday. The euro weakened to $1.0842 from $1.0858.