KEY POINTS

  • The Dow Jones Industrial Average posted its worst drop in 2 years
  • South Korea upgraded its coronavirus alert to the “highest level"
  • Oil futures, treasury yields plunged

U.S. stocks plummeted on Monday as the number of coronavirus cases outside China surged, raising fears of a prolonged global economic slowdown. The epidemic has now spread to more than 30 countries.

The Dow Jones Industrial Average fell 1,030.48 points to 27,961.93 while the S&P 500 dropped 111.82 points to 3,225.93 and the Nasdaq Composite Index tumbled 355.31 points to 9,221.28.

The Dow’ logged its biggest point and percentage-point decline since February 2018 and gave up all of its gains for 2020. The S&P 500 also saw its year-to-date gain vanish.

Airlines, chipmakers and casino operators were largely in the loss column.

Volume on the New York Stock Exchange totaled 4 billion shares with 303 issues advancing, 85 setting new highs, and 2,694 declining, with 242 setting new lows.

Active movers were led by Ford Motor Co. (F), Advanced Micro Devices Inc. (AMD) and Microsoft Corp. (MSFT)

Over the weekend, the virus spread to other countries, including South Korea which upgraded its coronavirus alert to the “highest level.” South Korea now has more than 800 confirmed cases, the highest outside mainland China. Italy now has more than 200 cases and five deaths.

China, the source of the virus, has 77,150 confirmed cases, although the rate of new infections appear to be stabilizing.

Federal Reserve Bank of Cleveland President Loretta Mester said on Monday the coronavirus outbreak poses a threat to the U.S.economy, but not enough to warrant any change in monetary policy.

“This might mean a larger negative impact on growth in China in the near term but perhaps a less protracted one,” she said. “At this point, it is difficult to assess the magnitude of the economic effects, but this new source of uncertainty is something I will be carefully monitoring.”

“Until last week [the virus] was largely contained in terms of growth of new cases and growth in fatalities to China,” said Tim Graf, head of macro strategy at State Street. “And there was also a belief that whatever policy response might come, it would be forceful enough that you would see a V- or U-shaped recovery. But perhaps today we’re starting to see that might be a little more complicated.”

Other analysts are even more worried.

“I’ve now come to the view that equity markets, global equity markets, have to reprice to take into account or fully discount the dramatic economic impact that all of this [coronavirus] is going to have,” said Jonathan Pain, author of The Pain Report, on Monday morning in Asia. “I believe that repricing … has just started and I think it’s gonna be approximately 20% to 25% in the next month or so. I don’t think there’s a letter in the alphabet which adequately describes the profile of the economic shock that … we’re beginning to see. Of course there will be a recovery at some point in time, however, we don’t know when that point in time is.”

But Fox Business host Charles Payne attributed he plunge in the stock market partly to Sen. Bernie Sanders (I-Vt.) scoring victories in primaries and caucuses. “The Bernie factor is finally rearing its head in the stock market,” he said. “This is the first time I think Wall Street is taking Bernie Sanders very seriously.”

Larry Benedict, CEO of The Opportunistic Trader, thinks the stock market are on the brink of a 10% to 15% correction. “The second-largest economy [China] in the world is completely shut down,” he said. “People aren’t totally pricing that in. It seems like there’s much more to come.”

Quincy Krosby, chief market strategist at Prudential Financial, said the market had been “sanguine about the spread of the coronavirus. That sanguine stance is being tested today. Companies are assessing their suppliers and their supply chains and seeing whether or not their revenue is going to slow. Because of that, this has become a sell-first, ask-questions later type of market.”

Malaysian Prime Minister Mahathir Mohamad resigned on Monday morning.

The Federal Reserve Bank of Chicago's National Activity Index jumped to minus-0.25 in January from minus-0.51

Overnight in Asia, markets finished lower. China’s Shanghai Composite slipped 0.28%, while Hong Kong’s Hang Seng dropped 1.79%, and Japan’s Nikkei-225 fell 0.39%.

In Europe markets plunged, as Britain’s FTSE-100 fell 3.34%, France’s CAC-40 slashed 3.94% and Germany’s DAX dropped 4.01%.

Crude oil futures tanked 3.93% at $51.28 per barrel and Brent crude slipped 0.32% at $55.59. Gold futures rose 0.76%.

The euro edged up 0.06% at $1.0854 while the pound sterling fell 0.22% at $1.2929.

The yield on the 10-year Treasury plunged 6.73% to 1.372% while yield on the 30-year Treasury dropped 4.48% to 1.832%.