Stocks slumped on Wall Street after new coronavirus cases in the US hit their highest level in two months, renewing worries that the economy may take longer to bounce back than investors had hoped.
The S&P 500 fell 2.6 per cent Wednesday, wiping out its gains for the week. Markets have been rallying recently on hopes that US states and regions around the world could continue to lift lockdowns put in place to slow the spread of the coronavirus.
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Cruise lines, which would stand to suffer greatly if travel restrictions are extended, were among the biggest losers. Energy stocks fell along with oil prices.
The S&P 500 was down 2.6 per cent in late-afternoon trading, giving back all of its gains for the month. The selling, which followed a skid in European stock indexes, accelerated around mid-morning on news that New York, New Jersey and Connecticut will require visitors from states with high infection rates to quarantine for 14 days.
While economic data is pointing to a recovery from the spring lockdowns that are being eased in the US and other countries, the rise in new infections is stoking worries that the reopening of businesses may have to be curtailed again.
"We've created this optimistic trade over the last few weeks," said J.J. Kinahan, chief strategist with TD Ameritrade. "Are we going to be able to get back to business as fast as it has been priced into equities?"
Technology companies, which have been leading the market higher as it bounced back from a plunge in March, accounted for the biggest slice of the market's pullback. Financial, health care, communication services and industrial sector stocks also took heavy losses. Energy stocks were down the most as the price of oil dropped sharply.
Cruise lines, which would stand to suffer greatly if travel restrictions are extended, were among the biggest losers in the S&P 500. Norwegian Cruise Line, Carnival and Royal Caribbean Cruises were each down more than 11 per cent. Hotel operators also were down sharply. Wynn Resorts and MGM Resorts International were each down more than 8 per cent. Shares in airlines slumped, too. Delta Air Lines slid 7.2 per cent.
The Dow Jones Industrial Average was down 675 points, or 2.6 per cent, to 25,480. The Nasdaq, which was coming off its second all-time high this week, was down 2.2 per cent. The Russell 2000 index of small company stocks gave up 3.4 per cent. Despite the shedding its gains for June, the S&P 500 is on pace for its best quarter since the fourth quarter of 1998.
The market has been mostly in rally mode since April as investors focused on the prospects for an economic turnaround as broad areas of the economy reopened. Recently, some encouraging economic reports have fueled optimism that the reopening of businesses in the US and elsewhere could pull the economy out of a deep recession sooner rather than later.
But the recent surge in new infections is undercutting some of that optimism. Coronavirus hospitalizations and caseloads have hit new highs in over a half-dozen US states. New cases nationwide are back near their peak level of two months ago.
While early hot spots like New York and New Jersey have seen cases steadily decrease, the virus has been hitting the south and west. Several states on Tuesday set single-day records, including Arizona, California, Mississippi, Nevada and Texas.
On Tuesday, Federal health officials told Congress to brace for a second wave of coronavirus infections in the fall and winter of this year.
"There's the possibility of shutdowns, but probably more realistically delays in reopening," Kinahan said. "This puts doubt on how comfortable people will be getting on a plane or staying in hotels."
Wednesday's sell-off may also reflect traders taking the opportunity to unload some stocks that have been big winners in the market's recent rally, said Tracie McMillion, head of global asset allocation strategy for Wells Fargo Investment Institute.
She expects the second half of the year to remain volatile for the market, citing the virus and uncertainty ahead of the US election in November.
"Another concern is that we're getting closer to earnings season," McMillion said. "As we get closer, investors might start to get nervous that earnings and guidance could disappoint."
Major stock indexes in Europe also fell broadly. Germany's DAX dropped 3.4 per cent, while France's CAC 40 slid 2.9 per cent. Britain's FTSE 100 lost 3.1 per cent. Markets in Asia closed mostly higher.
The yield on the 10-year Treasury note fell to 0.69 per cent from 0.70 per cent late Tuesday. It tends to move with investors' expectations for the economy and inflation.
In energy trading, benchmark U.S. crude oil slid 5.8 per cent to settle at $38.01 a barrel. Brent crude, the international standard, fell 5.4 per cent to close at $40.31.
- Associated Press