By Anna Hirtenstein and Paul Vigna
U.S. stocks fell Tuesday, pulling back after a recent rally,
while gloomy economic forecasts suggested a recovery will be
The S&P 500 fell 1.5%, snapping its five-session winning
streak. The Dow Jones Industrial Average dropped 1.1% and the
Nasdaq Composite lost 0.9%. All three indexes have risen more than
40% from their March lows.
Shares of airlines were among the biggest decliners after United
Airlines said reservations for travel within the coming month began
to slide after new quarantine measures were put into effect. The
carrier also warned employees to prepare to receive notifications
of potential furloughs as soon as this week.
United fell 7.5%, while Delta Air Lines dropped 5.1% and JetBlue
declined 4.6%. Airlines are also lining up another $25 billion in
federal loans as they stockpile cash to weather a crisis that they
have said will likely last years.
Elsewhere, Carnival fell 6.6% 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
"We're in this wait-and-see mode," said Oanda analyst Craig
Erlam, adding traders are seizing on encouraging economic data in
the U.S. and elsewhere, but continue to worry about the pandemic.
"Every day, it seems always to be explained by optimism or
anxiety," he added, referring to the market's moves.
Friday's U.S. jobs report showed continued improvement in the
labor market, though the jobless rate is still high at 11%. That's
coming even as new cases of coronavirus in the U.S. are rising and
some states are being forced to ease off their reopening plans.
Investors are also anticipating second-quarter earnings season,
which will kick off later this month. Profits are expected to
plunge 44%, according to FactSet, but investors will likely focus
on the outlooks for this year and next. Expectations are already
very low, which could play into the market's hands, Mr. Erlam
"As long as the bar is low enough, investors always find a
reason to be optimistic," he said.
Energy and financial stocks were among the biggest decliners in
the S&P 500, with both groups falling more than 1.9%. The
economically sensitive groups have suffered the steepest losses in
the broad index this year.
Valero Energy fell 5.8% and Devon Energy fell 7.4%, while
Goldman Sachs lost 3.9% and JPMorgan Chase fell 2.8%, weighing on
With investors hesitant about the economy, bonds prices and the
U.S. dollar rose. The yield on the 10-year Treasury note dropped to
0.652% from 0.683% on Monday, declining for the second day. The WSJ
Dollar Index, which measures the dollar against a basket of
currencies, rose 0.1%.
Gold futures climbed above $1,800 for the second time in two
weeks, settling at $1804.20. That puts them less than 5% from their
2011 record high of $1,888.70.
The gains come as investors worry about the growing disconnect
between rising stocks and an economy still deep in recession, said
ThinkMarkets analyst Fawad Razaqzada.
"People are trying to hedge their long-equity bets by going long
gold as well," he said.
Investors are keeping a close eye on Covid-19 infection rates.
The number of cases in the U.S. rose by about 45,000 on Monday,
according to data compiled by Johns Hopkins University, while the
U.S. death toll has exceeded 130,000.
"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.
Overseas stocks were mainly lower as well. The pan-continental
Stoxx Europe 600 slipped 0.6% 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%.
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
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
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 0.9%, 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."
Write to Anna Hirtenstein at email@example.com and Paul
Vigna at firstname.lastname@example.org
(END) Dow Jones Newswires
July 07, 2020 16:18 ET (20:18 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.