Stocks Plummet on Second Virus Wave Fears

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Stocks were plummeting as the market’s worst fear is coming true; coronavirus cases are re-surging. 

All three major U.S. indices sold off, with the S&P 500 down as much as 2.83%. The 10-Year Treasury yield fell to 0.68% from 0.73% Wednesday. Yields fall when prices rise. 

According to data from Johns Hopkins, the 5-day moving average of new virus cases is now 27,000, up from a prior reading of 11,000 earlier in month. States like Florida and Texas have seen a spike, which may cause this states to rethink reopenings. 

“Our analysis demonstrates higher testing is not the main driver of new cases,” wrote Matthew Harrison, Morgan Stanley biotech analyst in an note. “We conclude active community spread is likely still ongoing."

This could spell more lockdowns. "If investors start jump-shipping on news that a second wave would lead to another period of confinement and economic shutdown, then the global stock markets would be hit by another wave of a severe sell-off,” wrote Ipek Ozkardeskaya, senior analyst at Swissquote Bank. "This time, however, the dip could be limited as those who regret being too skeptical regarding the Federal Reserve’s (Fed) capacity to resuscitate the market and missed the latest rally, would probably take the second chance to join the party without too much hesitation.” 

The Fed has made it clear, especially in its statement Wednesday, it will unleash unlimited amounts of stimulus, trillions of dollars worth, to fight economic pain cased by the virus. 

"We now know that rates will be pinned to near zero through 2022 and that the Fed will increase its Treasury and MBS purchases “over coming months at least at the current pace,” wrote Jasper Lawler, head of research at London Capital Group in emailed remarks to reporters. 

Recently, re-openings have boosted the market. That, plus protests over the tragic killing of George Floyd may have caused the surge in cases, though experts have not yet concluded as much. The S&P 500 had come to within 4% of its all-time-high, as momentum from re-openings, a slowing rate of change in economic decline and monetary and fiscal stimulus boosted stocks, which were priced for a near-perfect economic recovery. Now, the S&P 500 is 8.5% below that high. 

Leading the market down Thursday was bank stocks, with the Invesco KBW banking ETF  (KBWB) - Get Invesco KBW Bank ETF Report down 7% as the yield curve compresses. Airlines fell hard, with American Airlines  (AAL) - Get American Airlines Group, Inc. Report down 12.9% and United Airlines  (UAL) - Get United Airlines Holdings, Inc. Report down 15%. Disney  (DIS) - Get Walt Disney Company Report, which is hoping to reopen theme parks in California July 17, fell 4.4%. 

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