Markets Enter New Phase—Where Cash Is All That Matters
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A rush for cash shook the financial system Wednesday, as companies and investors hunkered down for a prolonged economic stall, taking the recent market turmoil into a new, more troubling liquidation phase.

Investors sold nearly everything they could in the most all-encompassing market drawdown since the darkest days of the 2008 financial crisis. Short-term money markets at the heart of the financial system were strained and large companies have drawn heavily on credit facilities while they have them.

The selling engulfed stocks, sending the

Dow Jones Industrial Average

down 1,338.46 points, or 6.3%, to 19898.92, its first close below 20000 in more than three years. The blue-chip index, which dropped more than 2,300 points earlier in the session, has fallen by about a third in just the past month.

Wednesday’s selloff crushed shares of companies as varied as airlines, restaurants, banks and retailers. The declines showed the extent to which investors are worried that the novel coronavirus pandemic—which has already forced airlines to cut flights and businesses to close—could send the economy into a recession.

Shares of

Clickbank Marketing Tools

Boeing Inc.

tumbled 18%, while stock in


lost nearly 10% in value. A drop of more than 20% in the price of oil slammed shares of energy companies.

Exxon Mobil Inc.

fell 10% and has halved so far this year.

Several stocks fell so sharply that exchanges had to temporarily halt trading in them. One such stock,

Alaska Air Group Inc.,

tumbled 23% Wednesday. Olive Garden owner

Darden Restaurants Inc.

slid 19%. , whose beauty portfolio includes Sally Hansen, dropped 31%.

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In debt markets, the sell-everything approach drove down prices of safe investment grade bonds and government debt alongside stocks and commodities of nearly all stripes. Normally, when investors turn away from risky assets, they buy safer government debt—or if they are really frightened, gold. Investors appear to be putting their trust in only the shortest-term government bonds or cash.

“When even silver and gold are getting crushed, that’s a panicked drawing of liquidity,” said Rob Arnott, founder of -based investment firm . “In the U.S., you can’t find toilet paper anywhere: This is the capital markets equivalent of that.”

Yields on one-month U.S. Treasury bills, a close equivalent to cash, fell to as low as 0.0033% from 0.31% at the start of the week, their lowest level in several years.

“There are very few places to hide. The tightening in financial conditions is happening across markets,” said Nikolaos Panigirtzoglou, global markets strategist at

JPMorgan Chase

& Co. He pointed to strong selling of bond funds that own the debt of the safest big companies, which is causing corporate borrowing costs to rise despite central bank efforts to do the opposite.

Another factor pushing government bond yields higher: As investors dash for safety, they are contending with a potential massive new supply of government bonds that will be necessary to fund stimulus measures, including $1 trillion of spending discussed in Washington Tuesday. In the simplest terms, a greater supply of bonds should cause prices to fall and yields to rise.

The Dow closed below 20,000 Wednesday and oil hit its lowest level in more than 18 years amid rising anxiety due to the new coronavirus pandemic. Photo: Lucas Jackson/Reuters

The rush to cash, meanwhile, has put strain on money markets in the U.S. and globally. The difference between the yield on the three-month Treasury bill and interbank lending rates, known as the Ted spread, jumped above 1 percentage point, according to , a level not seen since early 2009. In good times, the difference between the rates, which reflects how easy it is for banks to get hold of short-term borrowing, is negligible.

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The dollar, meanwhile, has surged against all currencies, as the cost to borrow dollars has risen substantially.

People and companies need cash to cover rent, bills and other fixed costs at a time when businesses and schools are shutting doors and sending staff home across the U.S. and Europe to halt the spread of the novel coronavirus.

“If you think about it from a small business standpoint, a big business standpoint, a fund —liquidity and cash is going to be ,” said John Briggs, head of strategy, Americas, at NatWest Markets. “Take Italy: They’ve just hard-stopped the eighth largest economy in the world. We’ve never seen anything like this.”


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The Bank of England said Wednesday it would provide an unlimited amount of financing in commercial paper markets.

Small and medium-size companies in the U.S. and Europe are likely to be among the hardest hit because they have less room for error. Eric Lonergan, a at , said smaller companies in the U.K. were already delaying payments to their creditors if they could.

“I think the entire economic system is trying to conserve cash at the moment,” he said.

Sushil Wadhwani, of QMA Wadhwani, a U.K.-based hedge fund, said the rational thing for individual companies was to access credit lines. Pension funds, meanwhile, which are normally built to ride out long market disruptions, may also be joining the cash dash.

“For pension funds, it is sell anything you can sell to build up reserves so you can tell your trustees that you have enough cash to pay pensions over the next nine or 10 months,” he said.

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“The longer this goes on, the more bankruptcy you get and the more unemployment you get,” he said.

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Write to Paul J. Davies at [email protected]

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