By Will Horner and Juliet Chung
U.S. stocks sold off on Wednesday, as rising coronavirus
infections shook investors' confidence in the global economic
recovery and sent them toward the safety of Treasurys and the
dollar.
All three major indexes were on pace for their worst week since
the week ending March 20. The Dow industrials lost 942 points, or
3.4%, its fourth losing session in a row.
The S&P 500 fell even more, 3.5%, its third consecutive
retreat. The benchmark has slipped more than 7% from its record
closing level in early September and its gains for the year now
stand around 1.3%.
The Nasdaq Composite dropped 3.7%. The stock prices of Facebook,
Google parent Alphabet and Twitter dropped roughly 5% each after
their chief executives squared off against U.S. senators in a
congressional hearing over their companies' roles moderating public
discourse.
Stocks have slid lower this week on a raft of uncertainties,
sparking discussion from investors about whether the sell-off
marked a buying opportunity or a turn in the market.
Worsening coronavirus case numbers may make more stringent
restrictions imperative across the U.S. and Europe, potentially
dealing a setback to a fragile economic recovery. New U.S. cases
climbed back above 70,000 as states across the country continued to
report high levels of fresh infections.
"A month ago, the narrative in the market was very much that
lockdowns would be limited and targeted, and so would have a
smaller impact on the economy," said Hugh Gimber, global market
strategist at J.P. Morgan Asset Management. "But now, what we are
seeing is broader concerns that lockdowns might be wider and have a
much wider impact."
The U.S. reported more than 73,200 new cases Tuesday, the second
daily increase in a row, according to data compiled by Johns
Hopkins University.
Susan Webb, founder and chief investment officer of outsourced
investment firm Appomattox, said the market was factoring in fears
that shutdowns would stall 20% of the domestic economy -- that
related to sectors such as travel, entertainment and restaurants --
and hit the economies of tourism-dependent countries such as Spain
and Italy.
She also attributed some of the sell-off to investors
rebalancing their portfolios as they assess the virus's hold in
different geographies.
"There is a rotation going on," Ms. Webb said. "A lot of people
are taking some money off the table in U.S. equities where they've
become substantially overweight as Europe has sold off, and there's
a recognition Asia is recovering faster and has gotten control of
this pandemic."
Investors also remain leery about the U.S. election, and whether
delays in counting mail-in ballots may lead to uncertainty in the
days after the Nov. 3 election. The S&P 500 as of midday was on
pace for its worst week before the presidential election on
record.
Hopes have also faded that talks between the White House and
Democrats would produce agreement over a fresh package of stimulus
measures before the election, propping up the economic
recovery.
"When you hit these record case numbers it grabs people's
attention," said Jeff Mills, chief investment officer at Bryn Mawr
Trust. "And when you have that combined with a breakdown in
stimulus talks it combines into this negative catalyst."
Another batch of corporate earnings reports were also being
scrutinized, and Ford and Visa are set to report just after the
market closes.
A rare bright spot Wednesday was General Electric, whose shares
were up 8% after it surprised analysts with a third-quarter profit.
Automatic Data Processing shares jumped more than 7% after
quarterly profits rose year-on-year.
Microsoft's stock was down 4.1% despite the company saying that
sales had jumped thanks to surging demand for its videogames and
cloud-computing services amid the pandemic.
Investors' expectations are too high, Mr. Mills said, and may
lead to stocks taking a beating.
"When companies miss or even just meet expectations, you are
seeing negative reactions in the stocks: that tells me valuations
are quite optimistic," said Mr. Mills. "Earnings expectations are
quite high, and if companies underperform, I am not sure the market
will react to that well."
Commodity markets were also under pressure with Brent crude, the
international benchmark for oil, falling 5% to $39.12 a barrel.
As risk appetite waned, investors sought the safety of U.S.
government bonds. The yield on the 10-year Treasury slipped to
0.764%, from 0.778% on Tuesday.
The ICE U.S. Dollar Index, which measures the greenback against
a basket of currencies, gained 0.8% as investors worried about
fresh lockdowns. The dollar typically rises when investors pull out
of stocks due to its status as a haven currency.
European markets have been particularly hard hit as the
Continent grapples with a surge of new cases and governments in
France and Germany consider stricter lockdowns. The pan-continental
Stoxx Europe 600 fell 2.95% to its lowest level since May.
Investors were also shedding riskier European bonds,
resurrecting worries that Europe will have trouble pushing through
another round of relief measures if the new lockdowns make
increased spending necessary.
Write to Will Horner at William.Horner@wsj.com and Juliet Chung
at juliet.chung@wsj.com
(END) Dow Jones Newswires
October 28, 2020 16:18 ET (20:18 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.