Correction Territory

The free fall in North American financial markets deepened on Thursday, as major stock indices around the globe posted significant declines. All three major US indices entered correction territory - defined as a drop of at least 10% from recent all-time highs.

The Dow dropped or 4.4%, closing at 25766.64, while the S&P declined 4.4%, closing at 2978.76. Tech heavy Nasdaq Composite lost 4.6% to close at 8,566.48.

Markets seem to be really pricing in the risks associated with the coronavirus, as major tech firms have already cut earnings and growth forecasts. As such, they’ve also begun to price in a rate cut as soon as March.

The Federal-funds futures, an instrument that traders use to bet on the path the central bank will take showed that the market is currently pricing in a 72% chance of a quarter-point rate cut at the March 17-18 meeting. A week ago, the probability of this happening was 9%.

As funds flow out from equities, the Canadian bond market is seeing capital inflows. The yield on the 30-year Canadian bond fell 7.2 basis points to as low as 1.286%. The yield on Canada’s 10-year government bond declined as much as 8.7 basis points to settle at 1.131%.

Speaking of Canada, the country’s main stock exchanges were halted for more than two hours on Thursday because of a technical issue. Exchanges run by the TMX stopped trading shortly before 2 PM eastern, a time when the S&P/TSX composite was down 1.9%.