Stocks plummeted Wednesday as coronavirus cases continued to spike.
All three major U.S. indices fell considerably, with the S&P 500 down 2.59%. The 10-Year Treasury yield fell to 0.7%. Yields fall when prices rise.
The 5-day moving average of daily new coronavirus cases in the U.S. hit 34,000 Wednesday, according to Johns Hopkins data. That level was last seen in late April. Just about a month ago, the trend was at 17,000. News also broke that visitors to New York, New Jersey and Connecticut from “hotspot” states like Florida and Texas are mandated to quarantine for 14 days, stoking fears of more lockdowns.
The sell-off in stocks had paused this month, as investors weighed the rising cases against the fact the lockdowns have not yet become a theme. Plus, another round of fiscal stimulus would be hugely beneficial. But the surge in cases is too great to ignore currently.
There was some discourse Wednesday on whether a small development on the trade front was partially responsible for the sell-off. The Trump Administration is considering roughly $3 billion worth of tariffs on European goods, a minimal amount compared to U.S. GDP, although still an unfortunate signal on trade.
All cyclical sectors fell harder than the broader market did, but the stocks selling off the hardest were the ones most sensitive to not only changes in the economy, but changes specifically related to the crisis. Airlines tanked, with United Airlines (UAL) - Get Report down 8.34%. Resorts fell hard. Wynn Resorts (WYNN) - Get Report fell 11%.
Here’s what Wall Street's saying:
Brian Price, Head, Investment Management, Commonwealth Financial Network:
"The market appears to be reacting negatively to the increasing number of coronavirus cases in southern states. The main fear being that these local economies will have to scale back their attempts to reopen or lockdown again altogether. We’re also hearing about Northeast states like New York, New Jersey, and Connecticut imposing quarantines on visitors from several states which seems to be causing a bit of fear in the market today. The longer term concern is that the number of states experiencing a significant spike will spread to other parts of the country and businesses will have to endure a shutdown similar to what we experienced in April and May. There is also some legitimate concern about equity valuations and how strong the rally has been over the past couple of months. The massive amount of monetary and fiscal stimulus that has been injected into the global economy was the primary catalyst behind the market’s advance but there seems to be ambiguity about additional support. Reluctance to extend or offer additional stimulus could bring a risk factor into the market that may not be fully appreciated at this point.”
Chris Zaccarelli, Chief Investment Officer, Independent Advisor Alliance:
"The news today about potential tariffs on European goods has been overshadowed by new data showing that Covid-19 cases are jumping higher in California, Texas and Arizona. Until the public feels as safe as they did on 12/31/19 (before the virus spread widely in the US), it seems unreasonable to believe that the stock market should be valued as highly as it did at the end of last year."
Matthew Harrison, Biotech Analyst, Morgan Stanley:
In the United States, the trend and scope of new virus cases continues to be worse than other western countries. Spread is accelerating. Our total predicted infections now stands at 3.1 million [1.3 million month ago], though we note this should be viewed as a best case scenario. Given the current trajectory we would expect this estimate to move higher.”
Bank of America Global Research:
"Rising US case counts raise fears of more lockdowns. We suggest watching fatalities, not just cases [fatalities trending downward].”
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