By Mischa Frankl-Duval 

U.S. stock futures wobbled Tuesday, following the S&P 500's deepest fall in over a month, as investors assessed the likely economic fallout of the rise in coronavirus infections and the pace of recovery for blue-chip American businesses.

Futures tied to the S&P 500 were largely flat after the benchmark retreated 1.9% at the start to the week. Contracts tied to the Dow Jones Industrial Average edged up 0.2%. The Dow dropped 650 points Monday, its steepest one-day point since Sept. 3.

Rising Covid-19 infection levels are compounding worries about the U.S. economic outlook as hopes of a new stimulus deal before next week's presidential election fade. The seven-day average of new cases in the U.S. reached an all-time high of 68,767 on Monday, another indication that the country is experiencing a fresh surge of infections as the weather turns cooler.

Investors are watching for cues on how authorities in the U.S. and Europe respond to the elevated coronavirus case numbers. Heightened restrictions on business and social activity could threaten to further undermine the halting global recovery.

"The key thing that we're watching at the moment is going to be the Covid numbers. More importantly, how countries are responding to them," said Seema Shah, chief strategist at Principal Global Investors. "The way that governments have stopped reprioritizing opening, and gone back to lockdowns: that's what's freaking out markets."

A number of countries in Europe, including Italy, Spain and Russia, have tightened restrictions related to the pandemic. More nations including Germany and France are weighing authorizing fresh limits to prevent hospitals from becoming overburdened as the Northern Hemisphere heads into the winter months.

"There are concerns that what Europe is doing is likely to be followed by the U.S., because they'll have no other choice," Ms. Shah said. "To have any kind of regional lockdown [in the U.S.] would be, I think, a major hit to market confidence."

Investors have also long been betting on a Covid-19 vaccine or treatment that would help end the pandemic and allow economic activity to fully resume. But federal health researchers halted testing of a combination of Eli Lilly's antibody drug and remdesivir in hospitalized patients, after an independent committee found a lack of a benefit. Lilly shares edged down over 1% in offhours trading.

Also weighing on market sentiment, a large English study showed the number of people with Covid-19 antibodies declined significantly over the summer, suggesting that getting the virus might not confer long-lasting immunity from future infection.

Despite warnings about the potential severity of the pandemic over the winter months, some investors are betting that authorities will avoid the stringent lockdown measures put in place in the spring, which brought the global economy to a jarring halt.

"At the moment, the market is discounting for further lockdowns and for the economy to suffer dramatically again, and I just don't see that," said Patrick Spencer, managing director at U.S. investment firm Baird. "We're in a V-shaped recovery."

Strong corporate earnings are also likely to bolster markets, Mr. Spencer said.

Three U.S. pharmaceutical giants -- Eli Lilly, Pfizer and Merck -- are among a string of companies set to report quarterly earnings starting at 6 a.m. ET. Machinery giant Caterpillar, manufacturer 3M and aerospace company Raytheon Technologies are also scheduled to report before the opening bell.

Results from Microsoft, due at about 4 p.m., may give investors additional cues on the strength of the largest U.S. technology firms. Those companies have been responsible for much of the stock market's strength this year.

"For a lot of companies, mainly big tech, where the expectations are pretty high, we need to see them meet those expectations," Ms. Shah said. Investors are going to be particularly focused on forward-looking projections, and any sense that companies anticipate further pain in 2021 could damage sentiment, she said. "The greatest concern is going to be the guidance, because it's [the fourth quarter] that's been the real concern."

In commodity markets, U.S. crude-oil futures climbed almost 1%. Gold prices edged down 0.3%.

Overseas, the Stoxx Europe 600 declined 0.6%.

In Asia, most major equity benchmarks posted tepid declines by the close of trading. Hong Kong's Hang Seng Index retreated 0.5%, Japan's Nikkei 225 was largely flat, while the Shanghai Composite Index ticked up 0.1%.

Write to Mischa Frankl-Duval at Mischa.Frankl-Duval@wsj.com

 

(END) Dow Jones Newswires

October 27, 2020 06:24 ET (10:24 GMT)

Copyright (c) 2020 Dow Jones & Company, Inc.
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