MANHATTAN (CN) — With no particular economic indicator driving investors, markets fell sharply on Wednesday as Wall Street grows increasingly worried about the proliferation of Covid-19.
“I think that investors are now admitting that Covid-19 won’t just go away,” Peter Ricchiuti, a finance professor at Tulane University, said in an email. “The V-shaped action of the stock market doesn’t match the possibly (far worse) W-shaped economy that we’re facing.”
At the morning bell, markets seemed primed for merely another mild downturn, with the Dow Jones Industrial Average falling 233 points and the S&P 500 and Nasdaq both seeing lesser declines.
Losses snowballed later in the day, however with the Dow losing 708 points by the closing bell. The Nasdaq, which earlier in the week hit a new high point, fell 2.2% to settle at 9,909 points.
Investors and economists chalk up the drop to the worrying trend of increasing Covid-19 cases worldwide.
“In certain U.S. states, the number of new infections has been rising recently, so the situation has been bubbling away in the background, but the remarks from Dr. Anthony Fauci has made dealers sit up and take notice,” David Madden, a market analyst at CMC Markets, wrote in an investor’s note.
Fauci, one of the top U.S. health officials combatting the virus, testified on Tuesday that he found the recent increase in cases of Covid-19 disturbing. “The next couple of weeks are going to be critical in our ability to address those surges,” Fauci told lawmakers.
The surge in Covid-19 cases has changed the mood even among some Republican governors who initially dismissed the severity of the virus’s transmission rate. In a press conference on Tuesday, Governor Ron DeSantis of Florida said health officials have seen “a real explosion of new cases among out younger demographics.”
The Sunshine State reported more than 5,500 new cases on Tuesday, a new daily record. Florida has seen cases of Covid-19 skyrocket since June 9, about seven weeks after the state reopened on May 4. “There is a light at the end of the tunnel,” DeSantis had said in late April.
The increase in cases has caused New York, New Jersey, and Connecticut to impose a 14-day quarantine on travelers from other states with infection rates of more than 10 per 100,000 residents over a week-long period.
Hotels in that tri-state region are asked to communicate to the states whether guests had traveled from one of the impacted states.
“We’ve worked very hard to get the viral transmission rate down and we don’t want to see it go up again because people are traveling into the state and bringing it with them,” New York Governor Andrew Cuomo said in a statement.
The renewed crisis is not limited to the United States. The European Union is mulling whether it should extend a ban on travelers from the United States, and will likely issue a recommendation before July 1.
The World Health Organization also has pointed specifically to the rise of cases in Central and South America as a cause for concern. According to Dr. Michael Ryan, the executive director of the WHO’s emergencies program, “the pandemic for many countries in the Americas has not peaked,” with many countries in those two regions seeing a 25%–50% rise in cases over the last week.
To date, more than 9.3 million people have been infected by Covid-19 worldwide, while nearly 480,000 have died, according to data compiled by Johns Hopkins University. In the United States, 2.3 million people have contracted Covid-19, while more than 121,000 have died.
The steep market drop was also exacerbated by an International Monetary Fund report on Wednesday that projects global growth will shrink by -4.9% this year, about 2% lower than a similar IMF forecast in April.
“We are now projecting a deeper recession in 2020, and a slower recovery in 2021,” IMF Chief Economist Gita Gopinath said during a Wednesday morning press conference. The IMF forecast global growth at 5.4% in 2021, about 6.5% less than pre-coronavirus forecasts for that year. “This crisis is a crisis like no other and will have a recovery like no other,” Gopinath said.
European markets closed sharply down after the IMF report, with Germany’s exchange falling 3.4%, France nearly 3%, and the pan-European Stoxx 600 2.7%.
Gopinath stressed that the shape of any economic recovery remains uncertain since a vaccine could help speed the recovery, and a second wave of the virus could diminish it.
“This is indeed the worst recession since the Great Depression,” she said. “No country has been spared.”