New Virus Cases Put Stocks in Free Fall to Early Lockdown Levels

MTA employee Shawn Turner, left, gives away masks and hand sanitizer at the entrance to a subway station in New York on Monday, the first day of the city’s reopening after three months at the forefront of the global coronavirus crisis. (AP Photo/Seth Wenig)

MANHATTAN (CN) — Wall Street posted its worst day since state lockdowns began, with markets plummeting on news that new cases of Covid-19 are spiking.

At the morning bell, the Dow Jones Industrial Average fell nearly 800 points, or 2.92%, vaporizing most of Monday’s gains. The S&P 500 and Nasdaq fell 2.5% and 2%, respectively.

Throughout the day things progressively got worse, and by the closing bell the Dow had plunged 1,861 points, nearly a 7% decrease. At the beginning of the pandemic lockdowns, the Dow saw a worse drop. On March 12, the Dow fell 2,352 points, nearly a 10%. Less than a week later, the Dow dropped against by 2,997 points.

The S&P 500 was close behind the Dow, falling about 6% for the day. Even the tech-laden Nasdaq, which has been immune to recent plunges and hit a new high on Wednesday at 10,020 points, had a bad day, losing 527 points or 5.2%. 

Investors are clearly rattled. The volatility index, colloquially known as the fear index, shot up to 16.25% in early Thursday trading. By 3:30 p.m. EST the index, which runs throughout the day, increased 54% to reach 42 points. The index still remains much lower than in mid-March when it rocketed up to 82 points. 

“A number of states who have wound down some of their restrictions, are now seeing a jump in new cases of coronavirus,” David Madden of CMC Markets wrote in a midday note. “Traders are dumping stocks for fear that more states will reveal a rise in fresh Covid-19 cases, too.”

Thursday’s market run extended also to oil futures. Barrels of crude had risen in May after having an awful March and April, but the price-per-barrel on the West Texas Intermediate benchmark fell nearly 10% on Thursday, and the international Brent benchmark dropped about 9%.

Promising employment data from the Labor Department did little to cheer up gloomy investors. The weekly unemployment report showed about 1.5 million new claims were filed the week ending June 6, the 10th week new claims had dropped. However, the report also showed that nearly 21 million Americans received unemployment benefits as of May 30, falling only 300,000 from the week prior.

Earlier in the week, several dire forecasts smothered Wall Street bulls. On Wednesday the Federal Reserve predicted the U.S. economy would shrink by 6.5% this year, followed by a 5% gain in GDP net year. Unemployment in 2020 would remain high, according to the Fed forecast, likely remaining at 9.3% by year’s end and then 6.5% in 2021.

A report from the Organization for Economic Cooperation and Development earlier that day forecast the global economy will shrink by at least 6% this year, the most dire economic crisis since World War II. The group also warned that a significant second wave of Covid-19 could lead to economic output shrinking by at least 7.6%, with 40 million additional workers being laid off.

President Trump, who had fired off a number of self-congratulatory tweets last Friday after the positive jobs report, took aim at the Federal Reserve early on Thursday after the market began its tumble.  

“The Federal Reserve is wrong so often,” Trump tweeted. “I see the numbers also, and do MUCH better than they do. We will have a very good Third Quarter, a great Fourth Quarter, and one of our best ever years in 2021.”

Despite the president’s assurances, investors are becoming increasingly worried about a second wave of coronavirus later this year. Several states that reopened early have now seen spikes in the virus. In Texas, hospitalizations hit a new high point three days in a row, with more than 2,153 patients hospitalized with Covid-19 on Wednesday. More than 2,500 in Texas tested positive for Covid-19 on Wednesday, the state’s single-day record.

“It appears the markets are having trouble digesting the Texas virus outbreak headlines coming so quickly on the heels of a soft economic reopening,” wrote Stephen Innes, chief global market strategist at AXI Trader in a note. “After all, a secondary outbreak is nothing to sneeze at as traders remain in a state of risk limbo watching risk assets for signs of continuation or stall.”

Despite the spike of Covid-19 cases, administration officials, increasingly nervous about the fragile economy, say they don’t want another round of state shutdowns. “We can’t shut down the economy again,” Treasury Secretary Steven Mnuchin told CNBC Thursday morning. “I think we’ve learned that if you shut down the economy, you’re going to create more damage.”

While some 7.4 million people have been infected by Covid-19 worldwide, at least 417,000 have died, according to data compiled by Johns Hopkins University. In the United States, 2 million people have contracted Covid-19, while more than 113,000 have died.

Editor’s Note: An earlier version of this article said that Johns Hopkins University reported about 7.7 million had been infected by Covid-19 worldwide while nearly 460,000 had died. Those numbers appear to be a calculation error on the university’s tracking website. They have been updated here to reflect numbers seen earlier in the day, 7.4 million global infections and 417,000 deaths.

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