Stocks are slumping sharply in afternoon trading on Wall Street on Monday (US time) and deepening last week’s losses, as a troubling climb in coronavirus counts threatens the global economy.
In mid-afternoon trade, the Dow has fallen by 2.7 per cent, the S&P 500 has shed 2.2 per cent and the Nasdaq is 2.2 per cent lower. Futures are pointing to a drop of 1.2 per cent or 71 points, at the open for the ASX.
Stocks also weakened across much of Europe and Asia. In another sign of caution, Treasury yields were pulling back after touching their highest level since June last week.
Coronavirus counts are spiking in much of the United States and Europe, raising concerns about more damage to the still-weakened economy. The US came very close to setting back-to-back record daily infection rates on Friday and Saturday. In Europe, Spain’s government declared a national state of emergency on Sunday that includes an overnight curfew, while Italy ordered restaurants and bars to close each day by 6 pm and shut down gyms, pools and movie theaters.
Hopes are fading, meanwhile, that Washington will be able to deliver more support for the economy anytime soon. House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin spoke several times last week on a potential deal to send cash to most Americans, restart supplemental benefits for laid-off workers and provide aid to schools, among other things.
But deep partisan difference remains on Capitol Hill, and time is running out for anything to happen before Election Day on November 3. Any compromise reached between House Democrats and the White House would also likely face stiff resistance from Republicans in control of the Senate.
Worries about the diminishing prospect for more stimulus in the short term helped drive the S&P 500 to a 0.5 per cent drop last week, its first weekly loss in the last four.
“While we are seeing nations attempt to stifle the spread of the virus through more localised and tentative restrictions, it seems highly likely that we will eventually see a swathe of nationwide lockdowns if the trajectory cannot be reversed,” said Joshua Mahony, senior market analyst at IG in London.
“Traders remain torn as they weigh up the potential impending benefits of a US stimulus package and potential vaccine,” he added.
The US economy has recovered a bit since the stay-at-home restrictions that swept the country early this year eased, and economists expect a report on Thursday to show it grew at an annual rate of 30.2 per cent during the summer quarter after shrinking 31.4 per cent during the second quarter.
But momentum has slowed recently after a prior round of supplemental unemployment benefits and other stimulus that Congress approved earlier this year expired.
Stocks of companies that need the virus to abate and the economy to return to normal were logging some of the sharpest losses in morning trading.
Norwegian Cruise Line Holdings fell 10.1 per cent, Marathon Oil dropped 6.9 per cent and United Airlines lost 7.6 per cent.
Energy stocks dropped to the largest loss among the 11 sectors that make up the S&P 500, falling in concert with oil prices. Nearly 99 per cent of the stocks in the index were lower.
Among the market’s few gainers in early trading were companies that can succeed even in a stay-at-home economy. Zoom Video Communications gained 1.7 per cent.
Amazon fared much better than the broader market, shedding a mere 0.2 per cent, while Apple lost an early gain to fall 0.9 per cent. Expectations are high for them, and analysts say they’ll report strong results for their latest quarter this week. They and other Big Tech stocks have soared through the pandemic on hopes their growth will only continue as work-from-home and other trends that benefit them accelerate.
This upcoming week is the busiest of this quarter’s earnings season, with more than a third of the companies in the S&P 500 index scheduled to report. Besides Amazon and Apple, Ford Motor, General Electric and Google’s parent company, Alphabet, are also on the docket.
Across the S&P 500, profit reports for the summer have been mostly better than Wall Street had feared, though they’re still on pace to be more than 16 per cent lower than year-ago levels. Through Friday, 84 per cent of S&P 500 companies reported better results than analysts had forecast, according to FactSet. If that level holds, it would be the best since at least 2008, when FactSet’s records begin.
Meanwhile, the upcoming US elections could mean more short-term uncertainty in the markets and the results could determine the size and timing of any aid from Congress, said Esty Dwek, head of global market strategy at Natixis Investment Managers.
“It’s going to be a little bit volatile in the next week depending on the results, but we’re not expecting weeks of uncertainty,” she said.
More to come
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