By Joy Wiltermuth, and Andrea Riquier
Stocks tumbled Wednesday, putting all the three major indexes on track for their worst week since March 20, as a surge in COVID-19 cases in the U.S. and Europe heightened investor worries over the economic recovery.
Investors also have begun to take precautions ahead of the Nov. 3 U.S. election while digesting third quarter corporate earnings reports.
The Dow Jones Industrial Average (DOW:DJIA) slid 943.24 points, or 3.4%, to end at 26,519.95, while the S&P 500 (S&P:SPX) dropped 119.65 points, or 3.5%, to close at 3,271.03. The Nasdaq Composite (AMERICAN:COMP) fell 426.48 points, or 3.7%, finishing at 11,004.87. All three indexes are now negative for the month of October.
Wednesday’s losses come after the Dow on Tuesday fell 222.19 points, or 0.8%, to end at 27,463.19, while the S&P 500 fell 0.29 point, or 0.3%, to finish at 3,390.68. The Nasdaq Composite bucked the weaker trend to rise 72.41 points, or 0.6%, to close at 11,431.35.
The Dow has now suffered its longest losing streak since February 28, 2020 when the market fell for seven straight trading days, according Dow Jones Market Data. Back in 2016, the S&P 500 fell for nine straight days through November 4th, which was the Friday before the elections of that year, according to Dow Jones Market Data.
Stocks came under heavy selling pressure Wednesday as Germany and France announced further restrictions on business activity in an effort to contain the rise in COVID-19 cases and the U.S. saw the number of new cases hit records.
New daily U.S. cases rose back above 70,000 on Tuesday after hitting a record above 80,000 at the end of last week. The U.S. has reported a record 500,000 cases over the past week, the New York Times reported, while the seven-day average of confirmed new cases hit a record of 69,967 on Monday, according to a Wall Street Journal analysis of data from Johns Hopkins University.
“The market weakness is caused by the COVID-19 case increases in this country and lockdowns in Germany and probably France,” James Ragan, director of Wealth Management Research at D.A. Davidson, told MarketWatch. “The fear is that it spreads to the U.S., in terms of new lockdowns, and if that derails the economic recovery.”
Jitters ahead of the Nov. 3 presidential election, now less than a week away, also were contributing to volatility, analysts said. Democratic challenger Joe Biden has maintained a lead over President Donald Trump in most polls, but the race has tightened.
With six days until Election Day, President Donald Trump has inched ahead of Joe Biden in Florida polling, according to a RealClearPolitics moving average of surveys focused on the crucial swing state. An unclear or contested election result could be a potential worst-case scenario.
“I think we have a good two or three months of volatility ahead of us before it gets closer to normal levels,” said Randy Frederick, vice president of trading and derivatives at Schwab’s center for financial research, of election-related turmoil and markets. “If there is a very decided, solid victory and no possibility of people questing it, maybe things settle sooner.”
Frederick said investors, until about a week ago, had been taking positions based on a clear election outcome. “But it’s hard to say at this point,” he told MarketWatch. “In the past week or so, it’s going back to the other direction of no one knows. That’s a prefect recipe for volatility.”
But even if a so-called “blue wave” occurs, with Democrats sweeping the White House and taking control of the Senate, it could lead to market uncertainty if promised new legislation, including a rise in corporate taxes, eventuates.
“The infections are an issue, but it’s about the elections,” said David Bianco, chief investment officer of the Americas at DWS Group, about the stock-market selloff.
He pointed to the 3.7% drop in the tech-heavy Nasdaq index on Wednesday, including its highflying work-from-home behemoths, as a signal that investors are more focused on preparing for the prospects of a Democratic sweep than COVID-19 infections and are “fine-tuning earnings estimates” for higher corporate taxes.
“If you get a sweep, you have more policy uncertainty, simply because you go from the status quo to new players and it will take time to figure out their legislative priorities and the timeline for implementation,” Bianco said.
Meanwhile, the chief executives of Alphabet Inc.’s (NAS:GOOG) (NAS:GOOGL) Google, Facebook Inc. (NAS:FB) , and Twitter Inc. (NYS:TWTR) took heat during a Senate Commerce subcommittee hearing Wednesday about whether social-media sites should be held liable for content posted by their users.
Investors were also wading through the busiest week of the earnings reporting season, including better-than-expected results late Tuesday from software giant Microsoft Corp. (NAS:MSFT) , though the company’s forecast came in shy of estimates . Shares closed down 5%.
“Big Tech just isn’t enough to compensate for election angst and what’s looking like a pandemic winter,” said Hilary Kramer of Kramer Capital Research, in emailed commentary.
In economic data, the government said the trade deficit narrowed to $79.4 billion in September. Economists surveyed by MarketWatch had forecast it would widen to $83.5 billion from $82.9 billion a month earlier.
In global equities, the Shanghai Composite (SHG:CN:SHCOMP) closed 0.5% higher, while Hong Kong’s Hang Seng Index (HONG:HK:HSI) and Japan’s Nikkei 225 Index (NIKKEI:JP:NIK) both declined 0.3%. The pan-European Stoxx 600 Europe (STOXX:XX:SXXP) closed out its worst day in about a month, tumbling 3% and London’s FTSE 100 (FTSE:UK:UKX) fell 2.6%.
Oil futures sank, with the U.S. benchmark settling down 5.5% at $37.39 a barrel as rising coronavirus cases dented expectations for demand . Gold futures finished down 1.6%, at $ 1,879.20 an ounce, as the dollar gained and traders sold gold to raise funds for margin calls.
The ICE U.S. Dollar Index (IFUS:DXY) a measure of the currency against a basket of six major rivals, was up 0.5%.
The yield on the 10-year Treasury note (XTUP:BX:TMUBMUSD10Y) was flat at 0.78%, after traders earlier in the session piled into assets perceived as safer. Yields and bond prices move in opposite directions.
William Watts contributed reporting