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Stocks slide on Wall Street as COVID-19 cases surge

Outside the New York Stock Exchange.
The Standard & Poor’s 500 index skidded 2.6%, shedding its gains for the week and leaving it nearly in the red for the month.
(Mark Lennihan / Associated Press)

Wall Street’s rally hit a snag Wednesday as new COVID-19 cases in the U.S. climbed to the highest level in two months, dimming investors’ hopes for a relatively quick economic turnaround.

The Standard & Poor’s 500 index skidded 2.6%, shedding its gains for the week and leaving it nearly in the red for the month. The sell-off, which followed steep drops in European markets, accelerated on news that New York, New Jersey and Connecticut will require visitors from states with high infection rates to quarantine for 14 days.

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 pullback. Financial, healthcare, communication services and industrial stocks also took heavy losses. Energy stocks fell the most as the price of oil dropped sharply.

Markets have been rallying recently on hopes that U.S. states and regions around the world could continue to lift the spring shutdowns put in place to slow the spread of the coronavirus. Economic data have been positive, helping fuel the cautious optimism. But the rise in new infections is stoking worries that the reopening of businesses may have to be curtailed again.

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“We’ve created this optimistic trade over the last few weeks,” said J.J. Kinahan, chief strategist at TD Ameritrade. “Are we going to be able to get back to business as fast as it has been priced into equities?”

Cruise lines, which would stand to suffer greatly if travel restrictions are extended, were among Wednesday’s biggest losers in the S&P 500. Norwegian Cruise Line, Carnival and Royal Caribbean Cruises all fell more than 11%. Traders also hammered casino operators. Wynn Resorts sank 11% and MGM Resorts International dropped 8.3%. Shares in airlines slumped too. Delta Air Lines slid 7.8%.

The S&P 500 index dropped 80.96 points to 3,050.33. But it’s still on pace for its best quarter since the fourth quarter of 1998.

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The Dow Jones industrial average declined 710.16 points, or 2.7%, to 25,445.94. The Nasdaq, which was coming off its second all-time high this week, fell 222.20 points, or 2.2%, to 9,909.17. Smaller-company stocks fared worse than the rest of the market. The Russell 2000 index dropped 49.60 points, or 3.4%, to 1,389.74.

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 economic reports helped lift expectations that the reopening of businesses in the United States 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. COVID-19 hospitalizations and caseloads have hit new highs in more than half a dozen U.S. states. New cases nationwide are back near their peak level of two months ago.

While early hot spots such as New York and New Jersey have seen cases steadily decrease, the virus has been hitting the South and West. Several states set single-day records Tuesday, including Arizona, California, Mississippi, Nevada and Texas.

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California reported more than 6,000 infections Tuesday — the largest single-day count in the state since the pandemic hit the U.S.

On Tuesday, federal health officials told Congress to brace for a second wave of coronavirus infections this coming fall and winter.

“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.

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She expects the second half of the year to remain volatile for the market, citing the virus and uncertainty ahead of the U.S. election in November.

“Another concern is that we’re getting closer to earnings season,” McMillion said. “Investors might start to get nervous that earnings and guidance could disappoint.”

The yield on the 10-year Treasury note fell to 0.68% from 0.70%. It tends to move with investors’ expectations for the economy and inflation.

In energy trading, benchmark U.S. crude oil slid 5.8% to settle at $38.01 a barrel. Brent crude, the international standard, fell 5.4% to close at $40.31 a barrel.

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Major stock indexes in Europe fell broadly. Markets in Asia closed mostly higher.


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