Stocks Dive as Coronavirus Cases Pop

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Stocks fell Tuesday as data show coronavirus cases ticking higher nationally.

All three major U.S. indices fell considerably, with the S&P 500 down as much as 1.2% and the Dow Jones Industrial Average down as much as 1.45%. The 10-Year Treasury yield, which had risen to a bullish 0.91% after the positive Bureau of Labor Statistics' jobs report on Friday, has fallen to 0.82%. Yields fall when prices rise.

Daily coronavirus cases in the U.S., on a 7-day moving average, have risen to roughly 25,000 from about 17,000 before May 27. That’s according to data from Johns Hopkins.

Morgan Stanley biotech analyst Matthew Harrison raised his total coronavirus cases estimate to 2.5 million from 2.3 million a week ago and from 1.4 million a month ago. “Many states have started to reach new highs in cases and we are now watching to see if any states breakout in the next 2-4 weeks,” Harrison wrote in a note.

Leading stocks down were consumer discretionary, as United Airlines  (UAL) - Get Report fell 8%. Banks fell as well, as the yield curve has compressed over the past several days, with the Invesco KBW Bank ETF  (KBWB) - Get Report down 2.6%. Crude oil only fell as much as 0.6% after a rough Monday, but the Select Sector Energy SPDR ETF  (XLE) - Get Report fell 3.6%

The S&P 500 is also particularly vulnerable to a downward shock, with the average stock trading at 25 times next year’s earnings. Compared to interest rates recently moving close to 1%, that leaves a risk premium investors are implicitly demanding of just 3%, below long-term historical averages of roughly 3.5%, as stock prices have risen fiercely in the past few months.

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