Dow falls 1,861 points for worst day in 3 months.
WASHINGTON — The loud noise coming out of Wall Street on Thursday marked investors' collective exhale after a spike in coronavirus cases, coupled with a gloomy outlook from the Federal Reserve, popped giddiness that a quick recovery was at hand.
The Dow Jones industrial average skidded 1,861 points, or 6.9 percent, to close at 25,128.17.
The Standard & Poor's 500 index sank 188 points, or 5.9 percent, to settle at 3,002.10. The Nasdaq Composite fell 527 points, or 5.3 percent, to end the day at 9,492.73.
It was their worst session in three months and marked a sharp break from the optimism earlier this week that had propelled the Nasdaq above 10,000 for the first time and pushed the S&P 500 into positive territory for the year.
Oil fell the most since late April, threatening to spoil crude's recovery from a historic drop below zero.
The market is grappling with record high U.S. oil inventories and an uneven demand rebound as signs mount that a second wave of the pandemic could be taking hold in some states. Oil's recovery has been driven by production cuts and the easing of pandemic-related lockdowns.
“It was very fast, driven by historically unprecedented OPEC+ cuts and central bank and government support on the demand side,” said Bart Melek, head of commodity strategy at Toronto Dominion Bank.
“We should not be surprised to see a pullback, following such a violent rally,” he said.
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. The stocks had spiked
in recent weeks, helping indexes rebound from their March lows on the hope that the coronavirus dislocations were abating. One common metric for stocks, known as the price-toearnings ratio, showed stock prices were way ahead of their historical averages.
The S&P 500 had been trading at more than 25 times earnings for the next 12 months compared to its historical average in the 15to 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.”
Stocks had rocketed the past few weeks on hope. From March 13 through Monday, airlines jumped 80 percent while banks, plus the leisure and entertainment sectors, climbed by 50 percent.
United, American and Delta airlines had all dropped more than 14 percent on Thursday. Boeing led the Dow fall with a 17 percent drop heading into the final minutes of trading. Norwegian Cruise Lines had fallen 18 percent, and Carnival Corp. was down 17 percent. Walt Disney Co., which is preparing to open some parks, was off more than 8 percent.
The stock retreat began Tuesday but picked up steam on Wednesday after Fed Chairman Jerome Powell made plain that a slow recovery was to come and
that more aid would be needed from Congress and the central bank to lessen the pain, particularly as jobs for millions of Americans may never return.
The Fed plans to keep the benchmark U.S. interest rate at zero, most likely through 2022. But critics say that approach widens economic inequality and lifts Wall Street over Main Street.
President Donald Trump repeated his pledge for a strong, swift recovery and coronavirus vaccine, tweeting Thursday: “The Federal Reserve is wrong so often. I see the numbers also, and do MUCH better than they do.”
The Fed, and Powell in particular, routinely have been the target of Trump's ire when the economy falters.
Concerns about a second surge of coronavirus infections have taken on new urgency since states eased restrictions on gatherings and commercial business.
Hospitalizations rose sharply in several states after Memorial Day, and nearly 2 million cases have been reported in the United States.
“Fears of a second wave are beginning to cause anxiety in the stock market,” said Torsten Slok, chief economist at Deutsche
Bank Securities. “Powell did what he could to be dovish, but there is nothing the Fed can do about the risk of a second wave of the virus.”