North American markets suffer worst week since financial crisis as investors find few safe havens

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U.S. and Canadian stocks careened to their worst weekly performance since 2008 in a sell-off that has left equity investors with few places to hide, even as some major indexes clawed back some lost ground toward the close of trading on Friday.

The S&P 500 slumped deeper into official correction territory. The index plummeted 11.5 per cent for the week, bringing the total decline since Feb. 19 to 15.8 per cent, based on intraday moves.

In seven sessions, the decline has wiped out more than US$3-trillion in wealth, based on the withering value of shares listed on the S&P 500 alone. The sell-off took place amid concerns that the spread of the China-based coronavirus outbreak will disrupt supply chains, sap economic activity and weigh on corporate profits.

The Dow Jones Industrial Average, which came within 450 points of hitting the 30,000 threshold on Feb. 12, instead shredded more than 4,000 points and closed at 25,409.36, down 357.28 points or 1.4 per cent. Earlier on Friday, the index had been down more than 1,000 points.

Canada’s S&P/TSX Composite Index fell 8.9 per cent this week, for its worst weekly decline since December, 2008, after shedding 454.39 points or 2.7 per cent on Friday.

Over the past six trading days, the index fell as much as 11.5 per cent, based on intraday levels, marking the fastest correction on record, according to BMO Nesbitt Burns. The average correction, defined as a drop of 10 per cent or more, took more than 81 days.

“Usually, Canadian stock market corrections are drips. For this one, the faucet is full-on,” Brian Belski, chief investment strategist at BMO Nesbitt Burns, said in an interview.

Economists and strategists are busily slashing their projections. National Bank Financial now expects that the global economy will expand by just 2.7 per cent in 2020, marking the weakest year for the economy since 2009.

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Financial markets expect the U.S. Federal Reserve to cut its key interest rate next month, by at least a quarter of a percentage point.

On Friday, Fed chair Jerome Powell weighed in with a statement, saying “the coronavirus poses evolving risks to economic activity” and that the central bank “will use our tools and act as appropriate to support the economy.”

Earlier, Citigroup lowered its expectation for global corporate profit growth (based on earnings per share, or EPS) in 2020 to zero from 4 per cent.

“Maybe even flat EPS is too optimistic. If the virus slows global economic growth to 2 per cent in 2020, our models suggest global EPS could contract around 10 per cent,” Robert Buckland, chief global equity strategist at Citigroup, said in a note.

The bond market appears to be signalling trouble ahead. Bond prices are soaring, sending yields down. The yield on the 10-year U.S. Treasury bond fell to a record low of 1.128 per cent on Friday, from above 1.9 per cent at the start of the year. The Government of Canada five-year bond fell to 1.076 per cent, down from about 1.7 per cent at the start of the year and its lowest level since mid-2017.

Apart from the head-spinning speed of the stock market decline, it has also been brutal because of its widespread nature. Within the S&P 500, just two stocks eked out gains for the week: Regeneron Pharmaceuticals Inc. and Qorvo Inc.

Everything else, from fast-growing technology stocks to economically defensive plodders such as utilities, declined over the week.

Some stocks looked particularly vulnerable to travel uncertainties. American Airlines Group Inc. plunged 31.5 per cent and Royal Caribbean Cruises Ltd. fell 24.2 per cent. Occidental Petroleum Corp., which is exposed to the tumbling price of crude oil (itself down 16 per cent since Feb. 20, to its lowest level since the end of 2018), dropped 22.3 per cent.

But even profit-gushing Apple Inc. has fallen 16.5 per cent from its recent high. And for the week, financials tumbled 13.5 per cent, utilities 11.8 per cent and consumer staples 10.4 per cent, suggesting that investors are selling everything regardless of economic exposure.

“You can’t rationalize an irrational market,” said Mr. Belski at BMO Nesbitt Burns.

The TSX has shared a similar fate: Just two stocks, MTY Food Group Inc. and Kinaxis Inc., showed gains for the week, among the 231 stocks in the Canadian index. Materials fell 10.7 per cent and financials dropped 8.8 per cent.

Gold producers, which mine the one commodity that is supposed to be a haven during market mayhem and economic turbulence, also declined. So did utilities such as Fortis Inc., even though their economically defensive businesses, rising dividends and attractive yields should make them more attractive when bond yields are in free fall.

“What happens during these sort of market-spooking episodes is that there tends to be indiscriminate selling. So basically it’s just a broad-based run for the exits, sell anything that you can sell,” Michele Robitaille, managing director at Guardian Capital, said in an interview.

“And then you get into the next phase, where the market starts looking through what has happened – and the reality is that [the impact of the coronavirus] is going to affect companies very differently," Ms. Robitaille said.