Stocks Drop on Coronavirus Uptick, Fading Stimulus Hopes
October 26 2020 - 12:20PM
Dow Jones News
By Anna Hirtenstein and Paul Vigna
U.S. stocks dropped sharply Monday as coronavirus cases surged
in the U.S. and Europe, adding to worries about the economic
outlook after Congress and the White House failed to agree on a
much-anticipated fiscal stimulus deal.
Major indexes opened lower, and the declines accelerated as the
morning progressed. All 30 components of the Dow Jones Industrial
Average were lower, as were all 11 sectors of the S&P 500.
The Dow industrials fell 670 points, or 2.4%, putting the blue
chips on track for their worst day since Sept. 3. The S&P 500
dropped 2%, and the Nasdaq Composite fell 1.7%.
Among the biggest decliners were the travel and leisure stocks
that have come under the most pressure this year during the
pandemic. Royal Caribbean Group dropped 10%, United Airlines
Holdings fell 6% and Marriott International declined 5.1%.
News on the pandemic front added to the gloom. The U.S. reported
60,789 new cases Sunday, down from recent record-setting levels,
but up from a week earlier. Scientists had been expecting cooler
weather to lead to a second wave of the disease, but it is coming
earlier than many had anticipated. That is prompting fresh concerns
about tighter lockdown restrictions and the effect on the
economy.
"It's a worrying picture for sure. You may have to account for
the possibility that by midwinter, there might be circuit breakers
implemented," including stringent short-term shutdowns, said David
Stubbs, head of investment strategy at J.P. Morgan Private Bank.
"But we always knew this recovery would be stop-start: We won't be
truly moving into the main part of a new cycle until the health
care issue itself is dealt with."
House Speaker Nancy Pelosi told CNN on Sunday that she was
expecting more answers regarding an aid package on Monday and that
an agreement could be reached this week among lawmakers. But
Democrats and White House officials are blaming each other for the
lack of progress after the two sides went into the weekend without
a deal, dimming hopes for an agreement before Nov. 3.
A selloff here isn't surprising, said Esty Dwek, head of global
market strategy at Natixis Investment Managers. Last week the
market was optimistic about stimulus aid, and this week those hopes
have been leveled somewhat. "It's just one of those mornings where
we're looking at the glass as half empty," she said.
Moreover, some polls suggest key Senate races are tightening,
Ms. Dwek said, cutting into expectations of a takeover that would
allow Democrats to pass an aggressive stimulus package after the
election. "The blue wave might not be as much of a given," she
said.
Investors are still tuned into third-quarter earnings season. A
heavy calendar this week includes Microsoft, Caterpillar, Apple,
Amazon.com, 3M, ConocoPhillips and Alphabet.
The critical element isn't necessarily the results themselves,
said Fawad Razaqzada, an analyst at ThinkMarkets, but the corporate
outlooks for the next few quarters. If executives start pointing to
weaker earnings growth and a slowing economy, it could cut into the
market's momentum, he said. "People are generally optimistic about
the future," he said. "This might be a reality check."
Elsewhere, the pan-continental Stoxx Europe 600 retreated 1.8%,
led by a decline in German stocks.
Coronavirus cases are accelerating in Europe. France reported
more than 52,000 new infections Sunday, a daily high. Italy is
trying to rein in the spread with new rules, such as the mandatory
closure of restaurants and bars at 6 p.m. Spain declared a state of
emergency, as it did in March.
In Asia, most major equity benchmarks closed lower. China's
Shanghai Composite Index fell 0.8%. Markets in Hong Kong were
closed for a public holiday.
Oil prices slipped. U.S. crude oil futures fell 3.7% to $38.37 a
barrel. A cease-fire in Libya has led analysts to project the
country's output will reach 1 million barrels a day in the next
four weeks, up from about half a million a day, according to Bjarne
Schieldrop, chief commodities analyst at SEB. The rise in
coronavirus infections is also muting prospects for the economic
recovery and damping demand, he said.
"We have oil being hit from both sides of the equation. Libya
supply is seeing a rapid increase," Mr. Schieldrop said. "At the
same time, demand is being hit by a wave of new Covid-19 cases and
with new lockdowns."
In bond markets, the yield on the benchmark 10-year U.S.
Treasury note declined to 0.795%, from 0.840% on Friday.
The WSJ Dollar Index, which measures the greenback against a
basket of currencies, added 0.3%.
Write to Anna Hirtenstein at anna.hirtenstein@wsj.com and Paul
Vigna at paul.vigna@wsj.com
(END) Dow Jones Newswires
October 26, 2020 12:05 ET (16:05 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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