Stocks snap winning streak
Wall Street’s recent string of big gains came to an abrupt stop Tuesday as stocks closed broadly lower after a pullback in markets overseas.
The S&P 500 fell 1.1% after spending most of the day in the red. The sell-off snapped the index’s five-day winning streak. Technology stocks, banks and companies that rely on consumer spending accounted for a big slice of the slide, which accelerated toward the end of the day. Bond yields fell and the price of gold rose, another sign of caution in the market.
Optimism that the economy is on the mend as businesses reopen has helped drive stocks higher. But the recent surge in confirmed new coronavirus cases has clouded hopes for a relatively quick turnaround. Investors are also girding for what the next few weeks will reveal about the health of corporate America as companies begin reporting their second-quarter results.
The selling followed a deeper pullback in France, Germany and elsewhere after the European Union’s executive arm said this year’s recession caused by the COVID-19 pandemic will be deeper than forecast. It also said next year’s expected rebound could be weaker than expected.
The S&P 500 dropped 34.40 points to 3,145.32. The Dow Jones industrial average fell 396.85 points, or 1.5%, to 25,890.18. Big technology stocks helped drive early gains for the Nasdaq, but they faded by afternoon. The index came off an all-time high, losing 89.76 points, or 0.9%, to 10,343.89.
Small company stocks took the heaviest losses. The Russell 2000 index slid 26.89 points, or 1.9%, to 1,416.
The U.S. stock market has been churning over the last month, with big daily moves up and down keeping it roughly in place. It’s been a small-scale version of the market’s movements since the start of the year, when a nearly 34% plunge on worries about the pandemic caused recession quickly gave way to a rally that brought the S&P 500 nearly back to its record level.
Lifting markets higher on one end are reports showing budding improvements in the economy. The job market, retail sales and other economic indicators are all still well below where they were before the pandemic struck. But they’ve stopped plummeting and have begun to grow again as governments relax restrictions meant to slow the spread of the coronavirus.
That’s combined with unprecedented amounts of aid from governments around the world to prop up markets. It also helped send the S&P 500 up 1.6% on Monday, following up on a 4% rise the prior week, which itself helped cap the best quarter for the index since 1998.
But pulling markets lower on the other end are worries that the optimism is overdone. The pandemic isn’t going away, with infection levels worsening across wide swaths of the U.S. South and West, among other global hot spots. The concern is that spreading infections could keep households and businesses nervous and scare them away from spending. In the worstcase scenario, it could force governments to bring back some of the restrictions that sent the economy into its sudden recession.
Such worries spilled through markets Tuesday after the European Commission unveiled its more dour forecasts for 2020 and 2021.
The commission said the economy of the 27 nations in the European Union will shrink 8.3% this year, before growing 5.8% in 2021. In the previous forecasts released in May, it had forecast the economy would contract about 7.5% this year and bounce back 6% next year.
In the U.S. market, airlines and stocks of other companies that most need the economy to get closer to normal had the sharpest losses. United Airlines slid 7.6%, American Airlines dropped 7%, and mall owner Simon Property Group dropped 4.4%.
Benchmark U.S. crude slipped a penny to $40.62 per barrel after earlier flipping between losses and gains. Brent crude, the international standard, fell 2 cents to close at $43.08 per barrel.
The yield on the 10-year Treasury slipped to 0.64% from 0.68% late Monday. It tends to move with investors’ expectations for the economy and inflation.