The financial contagion from the coronavirus crisis continued to wreak havoc on global markets Thursday, as US stock indexes plunged into correction territory and industry analysts warned that some consumer goods may get harder to find in coming weeks.
The major US stock indexes fell 4.4 percent, adding to a rout that has Wall Street poised for its worst week since the financial crisis of 2008. The Dow Jones industrial average alone lost nearly 1,200 points and is some 3,800 points lower than its recent peak of mid-February, pushing it down below the 10 percent drop that financial industry watchers consider a market correction.
Fueling the selloff: fear that a sharp decline in industrial production and consumption in China, caused by population lockdowns and other virus-containment measures, will trigger a painful slowdown or even a recession in the United States.
For consumers, this week has been one of the few times in the last decade where noticeable portions of their retirement savings and other investments have evaporated in a matter of days.
“This is one of those market moments that you may find yourself losing sleep,” said Jim Lowell, chief investment officer at Adviser Investments in Newton.
He and others cautioned that an uptick in US virus infections over the coming weeks could push stocks into a bear market, or a drop of 20 percent. The advice from Lowell and other financial specialists: Don’t do anything drastic, but review your mix of investments to make sure they still match your long-term goals.
The last stock market correction was in late 2018, when investors reacted negatively to a series of rate increases by the Federal Reserve Bank. Before Thursday, there had been 26 corrections since World War II, according to CNBC and Goldman Sachs.
Investors are now betting the Fed will step in with additional cuts to cushion the economy. While that would help investor confidence, interest rate cuts would not provide an immediate boost because of the time it takes for them to work their way down to consumers. That might force the White House and Congress to pump money into the economy through tax cuts or other measures.
"I’m not sure that Fed tools will be sufficient to offset this risk,” said Bill Zox, chief investment officer for fixed income at Diamond Hill Capital Management in Columbus, Ohio.
The financial fallout could soon spread to the campaign trail, as a further weakening of the US economy and decline in stock values could undermine a cornerstone of President Trump’s strategy to run for reelection on the good times washing through Wall Street and Main Street.
Disruptions to consumer markets could begin to show within a matter of weeks, analysts said. From smartphones to shirts, shoes to school supplies, few parts of the consumer economy are escaping the shortages of materials, parts, and components.
David Shillingford, the chairman at Resilience360, a supply chain risk management company, said the impact is being felt in countries that source raw materials from China, such as apparel manufacturing plants in Bangladesh that are already signaling shortages.
Elliot Rabinovich, a professor of supply chain management at Arizona State University, said the retail industries that have “products with short life cycles,” such as fast fashion clothing stores that constantly restock their racks, will likely be impacted by the supply chain slowdown.
He said office supply stores are also likely to be affected as their factories tend to begin producing goods for back-to-school sales at this time of year.
Another industry that will take a hit? Pharmaceuticals, said Shillingford. “A significant percentage of the raw materials found in the active ingredients of medicine are coming out of China,” he said. The US Food and Drug Administration reportedly contacted makers of some 20 medicines this week to gauge whether they have adequate supplies.
Microsoft joined Apple in warning that the supply disruptions would affect its financial performance later this year, suggesting the companies expect to have trouble selling enough iPhones, Surface tablets, and other hardware because they cannot get enough parts or products out of China.
Shawn DuBravac, chief economist for IPC, a trade association serving the electronics industry, said product makers are making do with inventories that shipped from China just before the virus clampdown, but are anticipating delays of three to six weeks for the next round of components.
“So where you would start to see the delay in the US market is over the next month,” DuBravac said. He also predicted supplies of electronics will rebound quickly once the virus is under control.
“Supply chains are fragile,” Dubravac said, “but they’re not brittle.”
Auto makers are also being hammered by a slowdown in parts from China, such as Hyundai of South Korea and Nissan of Japan, said Peter Nagle, senior analyst with the automotive economics group at research firm IHS Markit.
“Inventories are real lean across the industry right now,” said Nagle.
The travel industry has been dealing with the coronavirus for weeks, but the sudden eruptions of cases in Europe and the Middle East have raised the specter of more widespread travel restrictions. In Italy, Venice ended its Carnival early, while parts of Milan look like a ghost town. Saudi Arabia this week closed off visas to foreign travelers preparing annual pilgrimages to the holiest sites in Islam.
Business travel has already been disrupted, with Facebook on Thursday announcing the latest cancellation — its annual developers conference in San Francisco scheduled for May. In Boston, the PaxEast gamers conference opened Thursday without one of the industry’s biggest players, Sony, which previously would not travel for the event “due to increasing concerns” about the coronavirus.
And what about vacationers trying to make overseas travel plans for the summer, or spring break?
The decision to book that trip is still highly personal, travel experts said, especially to ever popular Europe. Before booking, check the latest travel advisories from the State Department to see if your destination is still safe.
After hearing of the outbreak in northern Italy, 76-year-old Carol Richardson of Lynn decided that she would change her European trip this spring and go to Portugal instead of Italy.
“I’m paying a fee, but in the end I’d rather spend a few extra dollars than risk getting sick,” she said.
One problem point for US travelers: travel insurance, for those who bought it, isn’t likely to reimburse vacationers who back out of their trips, said Ted Rossman, an analyst at CreditCards.com.
Squaremouth, which compares travel insurance coverage, said there is one, albeit expensive, option to completely protect yourself, which is buying additional coverage known as the Cancel For Any Reason upgrade. That upgrade generally has to be bought within a few weeks of the first payment made toward the trip and Squaremouth estimates they cost roughly 40 percent more than a standard policy.
The good news: Many airlines and hotels are canceling reservations and offering fee waivers in the most affected areas, Rossman said. “That’s probably going to be your best option for getting your money back.”
Larry Edelman can be reached at email@example.com. Follow him on Twitter @GlobeNewsEd. Janelle Nanos can be reached at firstname.lastname@example.org. Follow her on Twitter @janellenanos. Christopher Muther can be reached at email@example.com. Follow him on Twitter @Chris_Muther. Hiawatha Bray can be reached at firstname.lastname@example.org. Follow him on Twitter @GlobeTechLab.