Stocks Open Lower as Investors Fear Rally Was Overdone
July 07 2020 - 10:28AM
Dow Jones News
By Anna Hirtenstein
U.S. stocks fell Tuesday with investors anxious that the recent
rally has gone too far amid gloomy economic forecasts.
The S&P 500 fell 0.4%, on track to break its five-session
winning streak. The Dow Jones Industrial Average dropped 195
points, or 0.7%. and the Nasdaq Composite was up less than
0.1%.
Overseas stocks were mainly lower as well. The pan-continental
Stoxx Europe 600 slipped 1% after reaching its highest level in
nearly a month. Hong Kong's Hang Seng Index edged down 1.4%, and
Japan's Nikkei 225 slipped 0.4%.
"Some investors will be taking profit after yesterday's rally,"
said Sebastien Galy, a macro strategist at Nordea Asset Management.
"There's been a real divergence between what the market believes
and the reality of the economy."
The Organization for Economic Cooperation and Development said
Tuesday that unemployment rates in the world's advanced economies
will reach the highest level this year since the Great
Depression.
The European Commission released its Summer Forecast report,
which downgraded its expectations for the trade bloc's economy. It
is now expecting a contraction of 8.3% for 2020, down from its
earlier prediction of 7.4%. It also forecast less growth next year
than previously thought, indicating a longer downturn.
"Expectations about a V-shaped recovery have taken a hit," said
Michael Hewson, a chief markets analyst at brokerage CMC Markets.
"This means there's going to be a longer bottom, it's going to take
awhile for economic activity to pick back up off the floor. It'll
be very stop-start when it comes to trying to recover normal levels
of activity."
Data released on German industrial production showed a rebound
in activity in May after the country eased its lockdown, but came
in below consensus expectations. Activity was still at least 20%
below levels seen in February. Germany's DAX stock index traded
down 1.2%, among the worst performing gauges in Europe.
It "shows how difficult the return to normality will be," said
Carsten Brzeski, chief economist for the eurozone at ING. "After
the lifting of the lockdown measures, businesses must have been
more reluctant than consumers."
Investors are keeping a close eye on Covid-19 infection
rates.
"We are in a situation where the latest news from the U.S.,
Germany, parts of the U.K. and the Melbourne lockdown in Australia,
it just acts as a reminder to investors that not everything is
going to proceed on a smooth trajectory," said Peter Dixon, an
economist at Commerzbank.
In corporate news, shares of Carnival fell 3.7% after it
canceled a series of cruises planned for the fourth quarter of 2020
and beginning of next year due to the coronavirus and resulting
delays at shipyards.
In Europe, Bayer declined 6.1% after it hit a snag in the
resolution of a lawsuit about a pesticide that allegedly causes
health problems such as cancer. The judge handling the case raised
concerns on how future claims would be dealt with and Bayer said it
would address this at the preliminary approval hearing on July
24.
The yield on 10-year Treasurys edged down to 0.664% from 0.683%
on Monday, declining for the second day as some investors sought
safety. The WSJ Dollar Index, which measures the dollar against a
basket of currencies, rose 0.1%.
Crude oil prices slipped. Brent, the global benchmark, retreated
0.5% to $42.87 a barrel. West Texas Intermediate futures, the U.S.
crude gauge, fell 0.8%.
Write to Anna Hirtenstein at anna.hirtenstein@wsj.com
(END) Dow Jones Newswires
July 07, 2020 10:13 ET (14:13 GMT)
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