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 into
the afternoon. 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 760 points, or 2.7%, putting the blue
chips on track for their worst day since Sept. 3. The S&P 500
dropped 2.1%, and the Nasdaq Composite fell 2%.
Among the biggest decliners were the travel and leisure stocks,
like Royal Caribbean Group, United Airlines Holdings and Marriott
International, that have come under the most pressure this year
during the pandemic.
"The ability to fight the virus further right now is very much
in question, and it's a political question," said Steven Wieting,
chief strategist at Citi Private Bank. It could be months before
anything gets done in Washington, and that's got investors
tentative, he said.
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
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."
The market has been very good to momentum stocks lately, but
this selloff is a reversal of that trend, said Andrew Simmon,
managing director at Morgan Stanley Investment Management. "The
risk was very overbought," he said. "The ingredients were there."
He suspects that reversal has further to run, especially given
anxiety over the election. But that is muting a different market
trend, he said, which is that some investors are already pricing in
a recovery next year.
That can be seen in the performance of small-cap stocks, he
said, where the Russell 2000 was up more than 9% over the past
month before Monday. After the election dust settles, he expects
that trend to pick up.
Elsewhere on Monday, 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 3.2% to $38.58 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 0.802%, 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 email@example.com and Paul
Vigna at firstname.lastname@example.org
(END) Dow Jones Newswires
October 26, 2020 15:22 ET (19:22 GMT)
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