Rising coronavirus infections in U.S. push stocks lower

TORONTO — North American stock markets capped a poor week by moving sharply lower Friday on rising COVID-19 infections in the United States.

New coronavirus cases in the U.S. hit a record high, raising investor concerns about the pace of the economic recovery. Rates were so high in Texas and Florida that their Republican governors backed down on loosening restrictions.

“When you hear headlines like: ‘We’re shutting things back down,’ that just brings back a risk-off tone,” said Erik Bregar, head of currency strategy at the Exchange Bank of Canada.

Equity markets have largely ignored infection rates as investors pinned their hopes on a rapid, so-called V-shaped recovery that Bregar said has been trumpeted by the “Wall Street machine” through the financial media.

Bond markets, however, have been more dubious. The 10-year U.S. Treasury yield was 0.68 per cent on Friday.

“It’s just saying to me that there’s still a very bumpy road ahead,” Bregar said, adding that the central banks will face growing pressure to deliver negative interest rates.

“I feel like, if you’re looking for reality, bonds have everything priced in correctly in my opinion,” Bregar said. If there was really going to be a V-shaped recovery coming, the 10-year Treasury would be above 1.5 per cent, he added.

The focus on infection rates seemed to neutralize a record 8.2 per cent increase in consumer spending in May.

The S&P/TSX composite index closed down 257.16 points at 15188.98. It fell 1.8 per cent over the past week.

In New York, the Dow Jones industrial average was down 730.05 points at 25015.55. The S&P 500 index was down 74.71 points at 3009.05, while the Nasdaq composite was down 259.78 points at 9757.22.

The Canadian dollar traded for 73.12 cents US compared with 73.29 cents US on Thursday and 73.99 on Tuesday afternoon. “Since Tuesday morning the Canadian dollar has been weaker on a broad U.S. dollar safe-haven bid,” Bregar said.

Materials was the only one of 11 major sectors on the TSX to move higher. It gained 0.37 per cent on higher gold prices as B2Gold Corp. and Kinross Gold Inc. each gained about 3.3 per cent.

The August gold contract was up $9.70 US at $1,780.30 US an ounce and the September copper contract was up 0.1 of a cent at nearly $2.68 US a pound.

Health care fell the most at 3.9 per cent, followed by utilities, financials and energy.

The Bank of Montreal lost 4.1 per cent as the heavyweight financials moved lower. The decline came in response to the U.S. Federal Reserve on Thursday limiting dividend payments and barring share repurchases until at least the fourth quarter following its annual stress test.

Energy was down 2.5 per cent with Shawcor Ltd., Frontera Energy Corp. and Vermilion Energy Inc. off 11.8, eight and 7.2 per cent respectively. The August crude contract was down 23 cents at $38.49 US per barrel and the August natural gas contract was down 0.2 of a cent at $1.54 US per mmBTU.