Dow falls by 1,861 as virus cases rise

S&P 500, Nasdaq see losses top 5%

FILE - In this May 26, 2020, file photo, a family wearing masks passes the New York Stock Exchange. Stocks fell sharply Thursday, June 11, 2020, on Wall Street as coronavirus cases in the U.S. increased again, deflating recent optimism for a quick economic recovery and raising more doubts about how long the market’s scorching comeback can last. (AP Photo/Mark Lennihan, File)
FILE - In this May 26, 2020, file photo, a family wearing masks passes the New York Stock Exchange. Stocks fell sharply Thursday, June 11, 2020, on Wall Street as coronavirus cases in the U.S. increased again, deflating recent optimism for a quick economic recovery and raising more doubts about how long the market’s scorching comeback can last. (AP Photo/Mark Lennihan, File)

Stocks fell sharply Thursday on Wall Street as coronavirus cases in the U.S. increased again, deflating recent optimism for a quick economic recovery and raising more doubts about how long the market's scorching comeback can last.

Many market watchers have been saying that the comeback in the market since late March was overdone and did not reflect the dire state of an economy in its worst crisis in decades. The S&P 500 rallied 44.5% between late March and Monday, erasing most of its losses tied to the pandemic.

On Thursday, the S&P 500 dropped 5.9%, falling 188.04 points to close at 3,002.10, its worst day since mid-March, when stocks went through repeated harrowing falls as the virus lockdowns began. The Dow Jones Industrial Average sank 1,861.82 points, dropping 6.9% to close at 25,128.17. The Nasdaq composite, which rose above 10,000 for the first time a day earlier, lost 527.62 points, or 5.3%, to 9,492.73.

Small-company stocks continued to bear the brunt of the selling, a signal that investors are becoming more pessimistic about a broad recovery in the economy. The Russell 2000 index fell 111.17 points, or 7.6%, to 1,356.22. European and Asian markets also fell.

[CORONAVIRUS: Click here for our complete coverage » arkansasonline.com/coronavirus]

The selling takes place as coronavirus cases rise in the U.S., with some of the increase likely tied to the reopening of businesses and the lifting of stay-at-home orders. Cases are climbing in nearly half the states, according to an Associated Press analysis, a worrying trend that could intensify as people return to work and venture out during the summer.

"Not surprisingly, a lack of preventative behavior has led to a resurgence in covid-19 cases around the country, and the stock market is having another gut check," said Chris Zaccarelli, chief investment officer for Independent Advisor Alliance.

Investor optimism for a speedy recovery was also dimmed by the Federal Reserve, which warned Wednesday that the road to recovery from the worst downturn in decades would be long and vowed to keep rates low for the foreseeable future.

Those factors, along with the recent run-up in stock prices, set the stage for the wave of selling Thursday.

One common metric for stocks, known as the price-to-earnings ratio, showed stock prices were way ahead of their historical averages. The S&P 500 had been trading at more than 25 times earnings compared with its historical average in the 15- to 16-times range.

"The market had become more optimistic and more enamored over a V-shaped recovery in recent weeks," said Jeffrey Kleintop, chief global investment strategist at Charles Schwab. "Anything that would disrupt that view was a vulnerability. And that's exactly what we've seen in the last day and a half. The potential for a second virus wave and another lockdown is a worry. And there is concern over a possible slower pace of recovery."

LOSSES ACROSS BOARD

All 11 S&P stock sectors and every Dow component were in the red. Nervous investors unloaded shares in airlines, cruise lines, energy and hotels that are businesses closely tied to a resurgent economy.

United, American and Delta airlines had all dropped more than 14% on Thursday. Boeing led the Dow fall with a 17% drop heading into the final minutes of trading. Norwegian Cruise Lines had fallen 18%, and Carnival Corp. was down 17%. Walt Disney Co., which is preparing to open some parks, was off more than 8%.

Technology, financial, industrial and health care stocks also accounted for a big slice of the market's broad slide.

Energy stocks were the biggest losers as crude oil prices fell sharply on worries that a slumping economy would need less energy. Oil prices were down 9% Thursday, taking major U.S. companies with them. Dow components Chevron and Exxon Mobil were off more than 8%.

Bond yields also fell, a sign of increasing caution among investors, and the price of gold surged 1.1% as investors shifted money into the traditional safe assets.

Emergency rescue efforts by the Fed and Congress helped arrest the market's staggering 34% skid in February and March. Since then, the market had been riding a wave of investor optimism that the economy will bounce back by the end of the year, if not sooner, as businesses reopen and people go back to work. But confidence in that scenario is waning as infections and fatalities continue to climb in the U.S. and elsewhere.

The market's historic comeback in April and May was driven in part by a surge in individual investors eager to buy up stocks at lower prices despite a backdrop of historic job losses, forecasts of sinking corporate profits and a global recession. The trend led to a record surge in new accounts opened by individual investors at brokerages and a record volume of trades. This week's sell-off has likely cut into many of those investors' recent gains.

Anxious investors shifted more money into government bonds Thursday, sending yields broadly lower. The yield on the 10-year Treasury yield slid to 0.66% from 0.74% late Wednesday, a big move. Last Friday it briefly rose above 0.90%, and it started the year at 1.92%.

UNEMPLOYMENT FIGURES

The Labor Department said Thursday that about 1.5 million people applied for U.S. unemployment benefits last week, another sign that many Americans are still losing their jobs even as the economy begins to gradually reopen. The latest figure marked the 10th-straight weekly decline in applications for jobless aid since they peaked in mid-March when the coronavirus hit hard. Still, the pace of layoffs remains historically high.

Other jobs data has been more encouraging. A report issued last week showed that the U.S. job market surprisingly strengthened last month as employers added 2.5 million workers to their payrolls. Economists had been expecting them instead to slash another 8 million jobs.

That report helped stoke optimism among investors that the economy can climb out of its current hole faster than forecast. But the Fed estimated Wednesday that the economy will shrink 6.5% this year, in line with other forecasts, before expanding 5% in 2021. It also expects the unemployment rate at 9.3%, near the peak of the last recession, by the end of this year. Friday's Labor Department report pegged the rate at 13.3%, but correcting for a survey classification error, the actual rate was closer to 16.4%.

Wayne Wicker, chief investment officer at Vantagepoint Investment Advisers, noted that the latest jobs report boosted confidence that the economy was plowing ahead. But those hopes "ignored the fact that the issues with coronavirus responsible for the market decline in the first quarter have not been resolved."

"With rapid escalation of transmission rates in several states this week, investors are beginning to recognize that their enthusiasm for a rapid return to normal is premature," Wicker said.

Information for this article was contributed by Alex Veiga and Damian J. Troise of The Associated Press; by Tiffany Hsu of The New York Times; and by Rachel Siegel and Thomas Heath of The Washington Post.

photo

FILE - In this May 26, 2020, file photo, a man wearing a protective face mask passes the New York Stock Exchange, as employees arrive for the partial reopening of the trading floor. Stocks fell sharply Thursday, June 11, 2020, on Wall Street as coronavirus cases in the U.S. increased again, deflating recent optimism for a quick economic recovery and raising more doubts about how long the market’s scorching comeback can last. (AP Photo/Mark Lennihan, File)

Upcoming Events