Dow drops 700 points as virus cases surge, IMF cuts global outlook
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U.S. stocks posted their worst day in nearly two weeks Wednesday amid worries over the prospects of a quick economic recovery as coronavirus cases jumped, coupled with projections that the global recession will be worse than initially thought.
The Dow Jones industrial average shed 710.16 points, or 2.7%, to close at 25,445.94, giving back all of its gains for the week after recording its worst day since June 11. The Standard & Poor’s 500 fell 2.6% to end at 3,050.33, also it's biggest one-day drop since June 11 following two consecutive days of gains. The technology-heavy Nasdaq Composite slid 2.2% to finish at 9,909.17, snapping an eight-day winning streak after touching a record a day earlier.
Investors were skittish as new virus cases in the U.S. have surged to their highest level in two months after trending down for more than six weeks. 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. And Florida reported another spike in cases.
Sentiment waned after the International Monetary Fund cut its economic forecasts further Wednesday as global supply chains attempt to combat social-distancing measures from the coronavirus pandemic in the second half of the year. The IMF estimates a contraction of 4.9% in global GDP in 2020, down from 3% in April. That would mark the worst annual contraction since immediately after World War II.
“Investors fear the worst of the pandemic isn’t behind us yet,” says Charles Lemonides, founder and portfolio manager of ValueWorks.
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“This is a highly emotional market, but we’re not seeing panic selling like we did in March,” says Luis Strohmeier, partner and wealth adviser at Octavia Wealth Advisors. “The spike in virus cases spooked people. There’s very little transparency as to when the global recession will end.”
Investors are closely watching economic data for signs of recovery from the worst global downturn since the Great Depression of the 1930s. Further updates on the U.S. economy are expected toward the end of this week, when the government will issue data on weekly unemployment aid applications, consumer spending and durable goods orders.
On Thursday, economists estimate between 1.3 million to 1.4 million people filed initial applications for unemployment insurance last week. That would mark a mind-boggling 47 million Americans filed first time unemployment claims in just 14 weeks.
Investors have recently been focused on the prospects for an economic recovery as more businesses reopen after being shut down due to the pandemic. Encouraging economic data, including retail sales and hiring, have helped stoke optimism that the recession will be relatively short-lived.
To be sure, the market has continued to climb in recent weeks, despite bouts of volatility, even as rising coronavirus cases in the U.S. and other countries cloud hopes for an economic turnaround. The near-term outlook for financial markets depend on several variables including the spread of the virus and the development of a vaccine, analysts say.
“The global economic growth projections released by the IMF are certainly stark, but should be ingested with the caveat that the outlook is radically uncertain and it is very difficult for anyone to paint an accurate picture,” Cormac Nevin, investment analyst at Beaufort Investment, said in a note.
While economic data is pointing to a recovery from the spring lockdowns that are being eased in many countries, the contagion rise is raising concerns that limits might have to be reimposed in some cases on business activity and public life.
Analysts are warning that, despite recent market rallies, there is little reassurance infections won’t keep spreading, given the growing numbers in some parts of the U.S., Brazil and Asia.
The U.S. reported nearly 35,000 new cases on Tuesday, among the nation's largest single-day increases since the start of the pandemic, according to Johns Hopkins University.
Worldwide infections have surpassed 9.2 million, with 2.3 million in the United States, according to Johns Hopkins University. More than 478,000 people have died worldwide, with more than 121,000 deaths in the U.S.
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.
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.
On Wednesday, shares of airlines, cruise liners and retailers that are tied to the economy reopening fell. United Airlines, Delta and Southwest each slid at least 2%. Carnival and Royal Caribbean both dropped 2% and 6%, respectively. Retailers Target and Gap fell at least 1% apiece.
The yield on the 10-year Treasury note fell to 0.69% from 0.70% late Tuesday. It tends to move with investors’ expectations for the economy and inflation.
In Europe, France’s CAC 40 slid 2.9%, while Germany’s DAX dropped 3.4%. Britain’s FTSE 100 was down 3.1%. Earlier, in Asia, Japan’s benchmark Nikkei 225 inched down less than 0.1%. Hong Kong’s Hang Seng slipped 0.5%, while the Shanghai Composite added 0.3%.
Contributing: The Associated Press