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Markets

US stocks suffer worst weekly losses since Lehman shock

Fed chairman signals possible rate cut in March

Traders on the floor of the New York Stock Exchange: U.S. equities have suffered have tumbled in back-to-back sessions.   © AP

NEW YORK -- New York stocks extended their losing streak Friday to finish their worst weekly sell-off since the 2008 financial crisis, with the Dow Jones Industrial Average shedding 12% for the week, as investor anxiety intensified over the fallout from the new coronavirus.

The Dow Jones Industrial Average plunged more than 1,000 points soon after the opening bell but pared its losses during the day. The benchmark index fell 357.28 points, or 1.39%, to 25,409.36. The S&P 500 lost 24.54 points, or 0.82%, to 2,954.22 and the Nasdaq Composite added 0.89 point, or 0.01%, to 8,567.37.

In an attempt to calm the markets, Federal Reserve Chairman Jerome Powell on Friday signaled that the central bank is ready to cut interest rates -- possible at its upcoming March meeting -- if the outbreak worsens.

"The fundamentals of the U.S. economy remain strong," Powell said in a statement released during a market sell-off. "However, the coronavirus poses evolving risks to economic activity. The Federal Reserve is closely monitoring developments and their implications for the economic outlook. We will use our tools and act as appropriate to support the economy," he added. The Fed used the expression "act as appropriate" as it prepared to cut rates in 2019.

For the week, the S&P 500 lost 11%, and the Dow Jones suffered a 12% decline, their biggest weekly losses since the 2008 financial crisis triggered by the collapse of Lehman Brothers.

The Dow's plunge compares to the 14% decline right after the Sept. 11 terrorist attacks of 2001 and the 13% fall after the Black Monday crash of October 1987.

Their more than 10% falls mean the markets are now in a correction. The S&P 500 just reached a record high on Feb. 19. Some investors were forced into selling at a loss amid steep market declines fueled by algorithm-based high-frequency trading.

With the viral outbreak showing no signs of abating, concerns are growing that restrictions on travel and goods shipments are here to stay.

Increasingly risk-averse, investors fled to the safety of U.S. Treasurys, with the yield on 10-year notes dropping to new all-time lows of below 1.2%. The VIX, the volatility index that measures investor fear, shot up 20% at one point to approach 47 -- far above the 20 that signals heightened anxiety.

Oil and gold prices were sharply lower. Oil futures fell 16% this week, the biggest drop since December 2008. Gold prices logged their sharpest single-day decline since 2013 on worries that the coronavirus will slow demand for raw materials.

As the outbreak continues to escalate outside of China, Morgan Stanley is moving toward a scenario where global growth in the first half of 2020 will be "the weakest since the global financial crisis," at 2.4% year on year.

Recent developments regarding the virus mean that disruption to production will likely last into the second quarter of 2020, a group of analysts led by Chetan Ahya, the investment bank's chief economist and global head of economics, said in a Friday research note.

Goldman Sachs, which in early February estimated that the coronavirus would subtract an annualized 2 percentage points or so from global gross domestic product growth in the first three months of 2020, said it has since cut the forecast further: to 5 percentage points in the first quarter and another 2 percentage points in the second quarter.

That leaves the investment bank's full-year global growth forecast at about 2%.

"All else equal, this would imply a short-lived global contraction that stops short of an outright recession," Goldman analysts led by Jan Hatzius wrote in a research note Friday.

A contributing factor is that "despite a sharp slowdown in reported infections in Hubei province and China more generally, economic activity in China is even weaker than we had anticipated," the analysts wrote.

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