Aussie shares dive deeper as virus stimulus package revealed

The Australian share market has plunged 7.16 per cent after US President Donald Trump's stimulus news failed to ease concerns about the economic impact of the coronavirus pandemic.

The benchmark S&P/ASX200 was down 410.2 points, or 7.16 per cent, at 5315.7 points at 1310 AEDT on Thursday while the broader All Ordinaries index dived 410 points, or 7.08 per cent, to 5,379.3.

The local market opened nearly two per cent lower on Thursday after the coronavirus was declared a pandemic and US equity markets plunged overnight.

This mornings sell off followed the Dow Jones Industrial Average in the US plunging by 5.9 per cent overnight, ending an 11-year bull run and taking the US into a bear market.

It came as the federal government unveiled a $17.6 billion stimulus package in a bid to stave off a recession. It included wage subsidies for apprentices, cash boosts for small businesses and more instant asset write-offs for business.

Australian investors could see another 3.5 per cent wiped off the share market after US equity markets plunged overnight. Picture: AAP
Australian investors could see another 3.5 per cent wiped off the share market after US equity markets plunged overnight. Picture: AAP

There was a brief upswing on news Mr Trump would make an address at noon Australian time - then it plunged after he said the pandemic was not a financial crisis and announced a 30 day travel ban to Europe.

CommSec market analyst James Tao said investors had been hoping for more detail Mr Trump's major stimulus package and those hopes were dashed pretty quickly.

"There was some expectation that he might give a bit more detail about the financial side of things but that didn't really come through," he said.

Energy, materials, consumer discretionary and health care stocks were smashed on Thursday but the panic sell was across the board.

Woodside fell 54 cents to $20.46 and BHP lost 96 cents to $27.56 at noon. BlueScope gained again, rising nine cents to $10.28.

 

 

Supermarket giant Woolworths was also among the few stocks on the rise just after midday.

It was 38.5 cents, or 1.07 per cent, higher at $36.43 at 1210 AEDT while rival Coles was nine cents, or 0.59 per cent, lower at $15.18.

Gold miners were hammered on Thursday after gold prices fell overnight as traders sold the precious metal to cover margins for stock markets shaken by the global spread of coronavirus.

Newcrest had fallen $1.65, or 6.2 per cent, to $24.98 by 1210 AEDT while Northern Star dropped 58.5 cents, or 4.5 per cent, to $12.405. US equity markets plunged on Wednesday after details of a promised major US government stimulus response failed to appear and the World Health Organisation declared Covid-19 a pandemic.

The Australian dollar was buying 64.60 US cents at 1310 AEDT on Thursday, down from 65.05 US cents from at the market close on Wednesday.

STOCKS ENTER BEAR MARKET AFTER PANDEMIC CALL

US stocks have fallen sharply again on Wednesday (local time), wiping out virtually all of a huge rally from a day earlier as Wall Street officially entered a bear market for the first time in 11 years.

All three of the major averages tumbled into a bear market, down 20 per cent from their February peaks, after the World Health Organization declared the new coronavirus outbreak a pandemic.

A bear market is defined as a drop of 20 per cent or more from a prior closing high.

The Dow Jones Industrial Average, which fell by as many as 1689.84 points, was the only index to close in bear-market territory as the S&P 500 and Nasdaq bounced off their worst levels of the session.

For the session, the Dow lost 1464.67 points, or 5.9 per cent, while the S&P and Nasdaq Composite were down 4.9 per cent and 4.7 per cent, respectively.

US markets have enjoyed a record-long bull market for the past 11 years.

 

The losses deepened after global authorities declared the coronavirus crisis a pandemic.

Another big central bank made an emergency cut to interest rates in hopes of blunting the economic pain caused by COVID-19, which economists call the global economy's biggest threat.

But investors are still waiting for details promised earlier by US President Donald Trump on potential aid for the economy through tax breaks and other relief.

"The government probably should have been thinking about stimulus last month," said Kristina Hooper, Invesco's chief global market strategist. "Every day that passes makes the economic impact of coronavirus that much worse."

Many investors are worried that a divided Congress will have trouble agreeing to any plan, she said.

But as stocks continue to fall, investors were told to keep a clear head.

"What we're actually telling clients to do is to stay calm and to stay invested," Katie Koch, co-head of Goldman Sachs Asset Management, told CNN.

While the reflex might be to sell as soon as the market flashes panic, timing the best points is to cash out is difficult. That's why it's important for investors to stay put.

"It's very possible that we will have an economic contraction," Koch said. But the economy moves in cycles, so investors shouldn't panic.

The Dow Jones fell four per cent. Picture: AP
The Dow Jones fell four per cent. Picture: AP

 

SPEED OF DECLINE 'BREATHTAKING'

But the speed of the market's declines and the degree of its swings the last few weeks have been breathtaking. It was only three weeks ago that the S&P 500 set a record high. Since then, it's lost 18.6 per cent, and the Dow Jones Industrial Average has had six days where it swung by 1,000 points, not including Wednesday. The Dow has done that only three other times in history.

For most people, the new coronavirus causes only mild or moderate symptoms, such as fever and cough. For some, especially older adults and people with existing health problems, it can cause more severe illness, including pneumonia. The vast majority of people recover from the new virus, but the fear is that COVID-19 could drag the global economy into a recession by hitting it from two ends.

 

It was another rough day on Wall Street. Picture: AP
It was another rough day on Wall Street. Picture: AP

 

On the supply side, the worst-case scenario has companies with less things to sell as factories shut down and arenas dim the lights because workers are out on quarantine. On the demand side, companies see fewer customers because people are huddling at home instead of taking trips or going to restaurants. That's why many analysts say markets will continue to swing sharply until the number of new infections stops accelerating.

In the United States, the number of cases has topped 1000. Worldwide, more than 119,000 people have been infected, and over 4,200 have died.

Neither lower interest rates nor stimulus plans by governments will stop this crisis and worries about its effect on the economy. Only the containment of the virus can do that. But they can provide support to the economy in the meantime, and investors fear things would be much worse without them.

The Bank of England's emergency rate cut on Wednesday follows an earlier one by the Federal Reserve, and economists expect the European Central Bank to be the next to act. It has a meeting Thursday on monetary policy.

Italy's government announced $US28 billion ($A42 billion) in financial support for health care, the labour market and families and businesses that face a cash crunch due to the country's nationwide lock down on travel.

Mr Trump hinted at plans for tax cuts and other economic relief late on Monday, but he has yet to unveil any details. His proposal for a cut to payroll taxes has met resistance on Capitol Hill.

The Dow Jones Industrial Average fell 1244 points, or 4.9 per cent, to 23,769, and the Nasdaq was down 4 per cent as of 1pm, New York time (4am AEDT)

Even a climb in Treasury yields, which has been one of the loudest warning bells on Wall Street about the economic risks of the crisis, wasn't enough to turn stocks higher. The yield on the 10-year Treasury rose to 0.82 per cent from 0.75 per cent late on Tuesday. That's a sign of less demand for ultra-safe U.S. government bonds. Asian markets also fell, while European markets lost earlier gains following the rate cut by the Bank of England and turned lower.

For all the fear in the market and selling by huge institutions, many regular investors have been holding relatively steady.

"People, by and large, are keeping their heads right now," said JJ Kinahan, chief market strategist at TD Ameritrade.

Clients are mostly sticking to their long-term investment plans, he said, though some may want to adjust their portfolios if they feel too uncomfortable with all the volatility. Still, the standard advice from most advisers is too focus more on long-term goals and pay less attention to short-term swings, which will likely dominate markets for some time.

"We're looking at a month of volatility as the coronavirus plays out," Kinahan said.

Stock prices generally move on two main factors: how much profits companies are earning and how much investors are willing to pay for each $US1 ($A1.40) of them. For the first part, Wall Street is slashing its expectations, which undercuts stock prices. For the second, all the coronavirus worries make investors less willing to pay high prices. Valuations were already above historical averages before the market's declines began.

 

The ABC News ticker displays news on the financial markets and the possibility of the NBA moving games due to the coronavirus, in New York's Times Square. Picture: AP
The ABC News ticker displays news on the financial markets and the possibility of the NBA moving games due to the coronavirus, in New York's Times Square. Picture: AP

Strategists at Goldman Sachs on Wednesday sharply cut their expectations for earnings growth this year, saying it will lead to the end of this bull market, which began more than a decade ago.

A plunge in crude prices has wiped out profits for energy companies, while record-low Treasury yields are squeezing the financial sector. The strategists say S&P 500 earnings per share will likely fall 15 per cent from a year earlier in the second quarter and could drag the index down to 2,450 in the middle of the year. That would be a nearly 28 per cent drop from its record.

Goldman Sachs, though, also says it expects the drawdown to be short, with earnings rebounding later in the year as the pain from the coronavirus wanes. It says the S&P 500 could rise back to 3,200 by the end of the year. The S&P 500 is in the midst of its longest bull market on record, unless it's not already over. It began in March 2009 after emerging from the financial crisis, but the index is down nearly 19 per cent since setting its record last month. If it hits a 20 per cent decline before rallying back to its high, it will mark the bull market's end.



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