North American stock markets fell on Tuesday amid global jitters about a virus outbreak in China.
The slide followed losses in global markets as concerns deepened that the new coronavirus spreading in the world’s second-largest economy could hurt tourism and ultimately economic growth and corporate profits.
Six people have died, and 291 have been infected in China, just as people in the country were preparing to make billions of trips for the Lunar New Year travel season. A U.S. citizen who recently returned from China was diagnosed with the new virus in the Seattle area, making the United States the fifth country to report a case, following China, Thailand, Japan and South Korea.
“From an investment standpoint, the risk with any virus is in the scope of its economic impact, and the mere fact that this has spread from China overnight to the U.S. so quickly reinforces the idea that the negative fallout could be global rather than local,” said Alec Young, managing director of Global Markets Research for FTSE Russell.
Asian stocks closed sharply lower. European markets also fell.
In Toronto, the S&P/TSX composite index unofficially lost 25.11 points, or 0.14 per cent, to 17,572.28.
Energy stocks lost 1.4 per cent, while the materials sector rose 0.2 per cent despite gold dropping $2.40 to $1,557.90 per ounce.
Industrials declined 0.9 per cent, while the health care sector slid 2.3 per cent.
Leading the index were Bombardier Inc., up 5.3 per cent, Constellation Software Inc., up 3.6 per cent, and Pan American Silver Corp., higher by 3.2 per cent.
Lagging shares were Ballard Power Systems Inc., down 12.1 per cent, Spin Master Corp., down 7.1 per cent, and First Quantum Minerals Ltd., lower by 6.4 per cent.
The Canadian dollar weakened against the greenback on Tuesday as oil prices fell and domestic data showed factory sales dropping for the third straight month, with the decline for the loonie coming one day before a Bank of Canada interest rate decision.
The Canadian dollar was trading 0.1% lower at 1.3072 to the greenback, or 76.50 U.S. cents. The currency traded in a range of 1.3045 to 1.3077.
“It’s purely because oil markets are on the back foot,” said Simon Harvey, FX market analyst for Monex Europe and Monex Canada.
U.S. crude oil futures settled 0.3% lower at $58.34 a barrel on expectations that a well-supplied global market would be able to absorb disruptions that have cut Libya’s crude production to a trickle. Oil is one of Canada’s major exports.
Canadian factory sales decreased by 0.6% in November from October, affected by rail transportation disruptions. That was a bigger drop than the 0.3% decline that analysts had forecast, although there was an upward revision to the prior month.
“Transitory factors aside, the second half of 2019 wasn’t kind to Canadian manufacturers,” Josh Nye, a senior economist at RBC Economics, said in a note.
In New York, the Dow Jones Industrial Average fell 151.25 points, or 0.52 per cent, to 29,196.85, the S&P 500 lost 8.75 points, or 0.26 per cent, to 3,320.87 and the Nasdaq Composite dropped 18.14 points, or 0.19 per cent, to 9,370.81
Within the S&P 500, stocks of U.S. companies that cater to Chinese tourists had some of the biggest losses, along with general travel companies, such as casinos and airlines.
Industrial, financial and energy companies were among the decliners. Those losses outweighed gains in defensive sector stocks, including real estate, utilities and household goods makers. Traders also shifted money into U.S. government bonds, sending yields lower.
Investors are looking at playbooks for past outbreaks, such as SARS in 2002-2003, where airlines, railways and other transportation companies saw their stocks slide the most, followed by retailers and hospitality companies, according to strategists at Jefferies.
Headlines about the spreading coronavirus have given investors an excuse to take profits following the market’s recent record-setting run. The three major U.S. stock indexes were coming off all-time highs set Friday. The S&P 500 hasn’t had a single-day drop of more than 1 per cent since October.
“Investors have shown a lot of optimism, and that might make some a little bit skittish,” said Willie Delwiche, investment strategist at Baird. ”Valuations are elevated. In this sort of environment, I don’t think it takes much of a headline to trigger a reaction.“
Tuesday’s drop for the index follows a strong run. Fears of a possible recession have faded, and investors expect the Federal Reserve to keep interest rates low, and the S&P 500 has risen in 13 of the last 15 weeks.
U.S. companies are in the midst of reporting their earnings results for the last three months of 2019, and early indications are encouraging. Less than a tenth of S&P 500 companies have reported their results so far, but of them, 72% topped analysts’ forecasts for profits. Those forecasts were low, to be sure, with analysts saying S&P 500 profits fell last quarter for the fourth consecutive time, according to FactSet.
China confirmed many people’s fears late Monday when a government expert said that the new type of coronavirus affecting the country can transmit from human to human, increasing its potential spread.
The outbreak “is developing into a major potential economic risk to the Asia-Pacific region,” said Rajiv Biswas of IHS Markit in a report.
Biswas pointed to the example of the 2003 outbreak of severe acute respiratory syndrome, whose economic impact was felt as far away as Canada and Australia.
The Associated Press and Reuters