MANHATTAN (CN) — The surge of new Covid-19 cases has forced once-optimistic governors to once again shutter economies, and Wall Street’s jitters have turned to real worries about the economic ramifications.
On Friday, Texas Governor Greg Abbott mandated that all bars close and restricted indoor dining at restaurants. The decision to partially close came less than 24 hours after Abbott issued an executive order that halts elective surgeries and directs Texans to wear face masks in local businesses.
In Florida, where health officials have warned about reopening too quickly, Governor Ron DeSantis has admitted that the surge “is real.” The Republican governor also ordered a shutdown of bars effectively immediately, via a tweet from his secretary of business & professional regulation.
Markets plummeted on the news, with the Dow Jones Industrial Average losing 730 points by the closing bell, a 2.8% decline. The S&P 500 and Nasdaq has somewhat less-severe falls.
“I think unfortunately what we’re seeing is the beginning of something that will continue into next week,” said J.B. Kurish, a finance professor at Emory University’s Goizueta Business School. “The financial problems are bigger because of the social problems, and the social problems create more financial problems,” he said.
Wall Street also has remained fixated on the recent uptick in coronavirus cases and hospitalizations the last few days. The United States has hit record new cases several days this week, most recently on Thursday when nearly 40,000 people contracted the virus.
To date, more than 9.6 million people have been infected by Covid-19 worldwide, while nearly 491,000 have died, according to data compiled by Johns Hopkins University. In the United States, 2.4 million people have contracted Covid-19, while more than 124,000 have died.
“The people who have been pent up in those places, they’re looking at it as an all-or-none phenomenon,” said Dr. Anthony Fauci on Friday. “Either we’re locked down or let’s storm the bars, go the beach, no masks. That’s what the problem is.”
Fauci noted during a press briefing with the rest of the White House’s coronavirus task force that the overwhelming number of new infections are among younger people.
Florida and Texas have seen their cases spike. The Sunshine State reports 114,000 confirmed cases and more than 3,300 total Covid-related deaths, according to Johns Hopkins. The Lone Star State reports 132,000 cases and 2,300 deaths, data show.
Both DeSantis and Abbott were slow to adopt stay-at-home orders compared with many other governors and had initially said the virus was not terribly dangerous.
Abbott has resisted any statewide mandate to wear masks, and he actually prohibited local governments from levying penalties on those who refused to wear masks. In terms of stay-at-home orders, Abbott preferred to let county officials decide for themselves whether they wanted to mandate lockdowns. Even in late April, he has said in-person church services should be allowed.
While DeSantis was one of the first governors to declare a state of emergency, he initially issued a “safer-at-home” order for only some counties rather than a statewide lockdown. The Florida governor infamously refused to close the beaches and also had compared Covid-19 to the regular flu for most people.
Many businesses have reversed course on their own. Apple decided to close most of its retail stores in Florida, while Microsoft announced on Friday it is permanently closing all 83 of its newly built retail stores.
The surge in Covid-19 cases likely has pushed back any hope of a swift economic recovery later this summer. “It is clear that large-group gatherings are not going to happen for quite some time,” wrote Joel Naroff of Naroff Economics on Friday. “The summer should have been a time of reviving hope, but the virus operates on its own timetable.”
With health concerns front and center, investors have taken in stride other economic data this week — including stubbornly high unemployment claims, a U.S. economy that officially contracted 5% in the first quarter of 2020, and a trade deficit that grew by 5%.
Investors also are not overly enthusiastic about the stringent new requirements on banks imposed by the Federal Reserve, which has prohibited share buybacks and curbed dividends to prepare for a rocky economic recovery.
“The sector is getting hit, and some are getting hit more than others,” Kurish said, adding that many pensions and funds are now looking to move out of equities and into high-quality corporate bonds.
Analysts say the Federal Reserve’s stress tests show that most financial institutions are in a good position to weather any economic storm — except for Goldman Sachs — showing capital reserve ratios above the estimated minimums.
Researchers at UBS wrote in an investor’s note that the “stress capital buffer shouldn’t be a capital constraint for most” top financial firms, adding that trust and regional banks also are well-positioned.
Many still expect the Fed will do more later this year. Researchers at Goldman Sachs, who forecast a U-shaped recovery, wrote that “there is a high probability that capital requirements could increase over the course of a year.”
Banks will give a better insight into their financial strength on Monday, when they can release their own capital plans.