A sharp rise in coronavirus cases outside of China jolted global financial markets Monday, reviving concerns about the potential economic fallout from the outbreak. 

The Dow Jones industrial average plunged 1,031.61 points, or 3.6%, to close at 27,960.80, its biggest one-day point drop since February 2018, when inflation fears rattled investors. It also erased the blue-chip average’s gains for the year.

The Standard & Poor’s 500 slid 3.4% to end at 3,225.89, but is still sitting within about 5% of its record high on Wednesday. The technology-heavy Nasdaq Composite shed 3.7% to end at 9,221.28. 

Stocks were pummeled after South Korea reported 231 new cases of the deadly virus Monday, bringing the country’s total to 833 cases. China reported 409 new cases, raising the mainland’s total to 77,150. The 150 new deaths from the illness raised China’s total to 2,592. Elsewhere, a surge in reports of new cases in Iran and Italy raised the prospect of more disruptions.

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“Many investors remain complacent about the far-reaching impact of coronavirus, which is continuing to spread – and a faster pace,” Nigel Green, chief executive and founder of financial consultancy deVere Group, said in a note. “This will inevitably hit financial markets and investors’ complacency leaves many wide open to nasty surprises.”

Monday’s decline battered stocks across most industries, including everything from airlines to technology companies to large financial firms. The sharp drop comes just days after stocks rallied to all-time highs, signaling a potential mood shift as investors looked for safety in havens like gold and U.S. bonds.

The latest developments raised fresh worries that the outbreak could threaten to derail global growth. Investors fear that production delays in China due to the virus could force multinational companies to cut their earnings outlooks.

Diane Swonk, chief economist at Grant Thornton, said the spread of the coronavirus is prompting her to increase her estimate of the outbreak’s impact on U.S. economic growth in the first half of the year. She previously forecast the virus would cut growth by three-tenths of a percentage point in the first quarter but now says the impact could be about half a percentage point, though she hasn’t completed her analysis.

“It’s causing an economic pandemic,” she says. “We have a global reaction that’s literally shutting down businesses.”

The main effect is on American manufacturers that may not receive parts from countries such as Italy as overseas factories shutter. Those U.S. companies could lay off workers, who, in turn, cut back on spending.

Expectations have climbed among traders that the Federal Reserve will cut interest rates this year to help cushion the U.S. economy. Fed-funds futures, used by investors to place bets on the course of the central bank’s policy, showed 90% of the market on Monday priced in at least one rate cut this year, up from a 58% probability a month ago, according to data from CME Group.

Still, another rate cut from the Fed might not have the same influence on the global economy compared with other times in recent memory, analysts caution. One reason why: the virus is hurting supply for companies, not demand, according to Tim Bray, senior portfolio manager at GuideStone Capital Management.

“No matter how much the Fed cuts rates, auto manufactures and other similar industries can’t suddenly produce supplies and inventories if factories are shut down,” Bray says. 

On Monday, Dow components UnitedHealth and Nike were among the biggest decliners in the blue-chip average, shedding 7.8% and 4.3%, respectively. Technology companies were among the worst hit by the sell-off. Apple, which depends on China for a lot of business, slid 4.8%.

Financial stocks sold off as worries about the global spread of the virus sent bond yields tumbling. Shares of JPMorgan Chase, Goldman Sachs and Bank of America fell 2.7%, 2.6% and 4.7%, respectively. 

The yield on the 10-year Treasury, which is a benchmark for mortgages and other kinds of loans, fell to 1.38% from 1.47% Friday. That yield was close to 1.90% at the start of this year.

Investors also flocked to other safe-haven corners of the market. Gold prices jumped 1.7%. Commodity prices slumped over the outbreak’s impact on demand for crude oil. U.S. oil prices slid 3.7% to to $51.43 per barrel.

In Europe, the Stoxx Europe 600 index fell 3.8% while Italy’s FTSE MIB shed 5.4%. Benchmark stock indexes in Hong Kong and Sydney fell 1.8% and 2.3%, respectively. 

Although global stocks suffered sharp declines, the pullback shouldn’t be viewed as unusual, some analysts say. Some had warned that stock prices were looking pricey compared with historical averages. 

“The market had gone too far too fast,” says Timothy Chubb, chief investment officer at Girard, a wealth management firm. “I’m surprised it hadn’t started taking the virus more seriously until this point.”

Bray of GuideStone Capital Management agrees. 

“Investors need to invest for the long term, stick with their strategy and ride out volatility at points like this,” Bray says. “Whenever there’s heightened risks, it’s always a good idea to take a look at your long-term strategy and make sure you’re on the right track so that you’re appropriately diversified.”

Contributing: Paul Davidson of USA TODAY; The Associated Press

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