Market Extra: The Dow just logged its worst 2-day point slide in history — here are 5 reasons the stock market is tanking and it isn’t just the coronavirus

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The U.S. stock market rally is unraveling, with a period of historic gains coming to a screeching halt, as fears the coronavirus epidemic may reach America rattles Wall Street.

The Dow Jones Industrial Average DJIA, -3.15%  was off 929.92 points, or 3.3%, at its Tuesday nadir at 27,030.88, a day after the blue-chip benchmark rang up a drop of more than 1,000 points, representing its third-worst daily point drop in the index’s 124-year history.

The Dow finished Tuesday down nearly 880 points to mark its sharpest two-session slide in point terms, about 1,910 points, for the Dow in its history, according to Dow Jones Market Data.

The fall also marked the largest two-day percentage slide for the index since the period ended Feb. 5, 2018, and puts the Dow 8.4% from its Feb. 12 record close at 29,551.42. That means the Dow is approaching correction territory at 26,596.28, defined as a drop of at least 10%, but not greater than 20%, from a recent peak.

Meanwhile, the S&P 500 SPX, -3.03% index and the Nasdaq Composite COMP, -2.77% all finished sharply lower. The S&P 500 is off 7.6% from its recent record on Feb. 19, and has shed $1.737 trillion this week, according to Howard Silverblatt, senior index analyst at S&P Dow Jones Indices in a Tuesday research note.

The Nasdaq is off 8.6% from its Feb. 19 all-time closing high. Put another way, it is 1.4% from falling into correction at 8,835.46.

Here’s are 5 reasons why the market is falling:


Fear of the COVID-19 disease infecting the U.S. is accelerating. The illness derived from the novel coronavirus, SARS-COV-2, which originated in Wuhan, China, in January is starting to affect global trade and travel and taking a bite out of confidence about earnings and economic growth.

Nancy Messonnier, director of the National Center for Immunization and Respiratory Diseases at the Centers for Disease Control and Prevention, said Tuesday that “the disruption of daily life might be severe,” from the disease for Americans.

The World Health Organization, WHO, hasn’t declared the viral infection a pandemic but the disease from the illness in the family of viruses known as SARS, or severe acute respiratory syndrome, has sickened people in China, South Korea, Japan, Malaysia, Italy and Iran. And according to Reuters, Austria, Spain, Croatia and Switzerland have also confirmed their first cases.

The virus has virtually crippled swaths of China’s manufacturing in the second-largest economy in the world, and the country is a big buyer of products and services from other countries. U.S. technology firms such as Apple Inc. AAPL, -3.39% depend on Chinese supplies.

Read: Why a ‘supply shock’ is biggest stock-market worry as viral outbreak continues

Investors don’t know how long the outbreak will last and it is too early to determine to what degree it will hurt corporate earnings, but a number of companies, including Hasbro Inc. HAS, -4.68%, HP Inc. HPQ, +5.66% and Mastercard Inc. MA, -6.71%, have already said that they think it will.

2020 elections

Uncertainty about the U.S. 2020 presidential election outcome is also starting to drive markets, strategists and analysts argue. A number of them think that if Vermont Sen. Bernie Sanders wins the Democratic presidential nomination, and possibly even the presidency, stocks could take a hit as he is perceived by some as an antibusiness candidate. “The risk to US stocks is pretty significant if Bernie gets the nomination,” said Ed Moya, senior market analyst with OANDA.

Lofty valuations

Even before the markets slumped this week, the value of stocks has been viewed as rich.

One measure of stock-market values, showed that the S&P 500 index was trading at 18.9 times the weighted aggregate consensus forward earnings estimate among analysts polled by MarketWatch. That is up from 16.2 a year ago, and, aside from a brief point early in 2018, it is the highest forward price-to-earnings, P/E, ratio for the benchmark index since May 2002.

The bond market

Government bonds yields have been sliding steadily lower as investors seek safe havens given doubts about global economic growth in the wake of the coronavirus epidemic.

The 10-year Treasury note yield TMUBMUSD10Y, -1.46%  carved out a fresh record low below 1.32% earlier Tuesday and the 30-year Treasury note TMUBMUSD30Y, -0.63% rate notched its all-time low last week.

Recession fears

Bond investors fear that the coronavirus might result in a global economic slowdown which might wash up on U.S. shores as a full-fledged recession. MarketWatch writer Rex Nutting explained the potential for an uncontained outbreak of COVID-19 this way: “Much of the immediate economic impact of a pandemic can be traced to the efforts to contain it, rather than from the effects of the disease itself. As we attempt to quarantine those who might spread the disease, we shut down a lot of economic activity.”

A Congressional Budget Office study indicates found that a pandemic “could produce a short-run impact on the world-wide economy similar in depth and duration to that of an average postwar recession in the United States.”

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