U.S. stocks suffered a sharp selloff on Monday but avoided a much uglier loss for the main benchmarks, as investors contended with the COVID-19 trajectory in Europe and a lack of progress toward another round of fiscal stimulus out of Washington.
Major global banks also faced pressure, after weekend news reports claimed that lenders continued doing business with customers suspected of illicit activity and wrongdoing.
How did major benchmarks fare?
The Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA -0.58% fell 509.72 points, or 1.8%, to close at 27,147.70, well off its low for the session at 26,715.15. The technology-laden Nasdaq Composite /zigman2/quotes/210598365/realtime COMP +0.48% staged an amazing turnaround, ending with a relatively meager 14.48-point decline, or 0.1%, to close at 10,778.80, after seeing an intraday nadir at 10,519.49. The Nasdaq-100 index /zigman2/quotes/210598364/realtime NDX +0.60% , composed of the Nasdaq Composite’s 100 largest companies, eked out a gain for Monday, up 43.24 points, or 0.4%, to close at 10,980.22.
The S&P 500 /zigman2/quotes/210599714/realtime SPX -0.16% slipped 38.41 points, or 1.2%, to 3,281.06. The broad-market index managed to sidestep a close beneath 3,222.76, which would have marked the index’s entrance in to correction territory, defined as a 10% drop from its recent peak.
Major U.S. benchmarks have suffered three consecutive weekly losses.
What drove the market?
Stocks ended lower to start the week but it could have been worse, as a late-session rally helped to mitigate some of the day’s worst selling and avoid bearish patterns crystallize in some of the major benchmarks and assets.
Helping to catalyze the slump was U.S. and European equities tumbling as a rising number of COVID-19 cases across several European economies sparked fears of renewed restrictions on activity, a development that would slow the global economic recovery’s pace.
London Mayor Sadiq Khan said on Monday that he and local officials will propose a round of new restrictions to stem the coronavirus’ spread. Pubs in England could be subject to early closes to tackle rising infections, while some bars and restaurants in hard-hit areas could be shut completely, according to a report from the Sun . Meanwhile, the regional government overseeing Madrid ordered a lockdown for some areas of Spain’s capital.
“There remains to be a tremendous amount of uncertainty,” said John Kaprich, investment director at Aware Asset Management, pointing to rising Covid-19 case counts in Europe. “The numbers coming out of Europe don’t look as optimistic as they once did.”
Another concern is the heated U.S. political environment heading into November’s general election, which could further delay additional fiscal aid. Equity markets already during the pandemic have been prone to powerful whipsaws. “With an equity market that’s been stretched, it’s not surprising to see a pullback,” Kaprich said. “We went from big, big lows back to normal, not in years, but in months.”
Esty Dwek, head of global macro strategy for Natixis Investment Managers, said it would be important to see what Europe’s climbing case count means to the economic recovery. “Data has basically stalled over the summer, so if [European policy makers] manage to keep activity going with ‘minor’ measures, data can hold up,” she said in emailed comments. “But if the situation deteriorates further or self-discipline impacts growth even further, we could have a tougher few months for European assets.”
U.S. and European bank shares fell sharply after BuzzFeed News and other outlets published articles alleging that the world’s most powerful banks continued doing business with customers they suspected of engaging in money laundering and other illicit activities.
The SPDR Financial Select Sector ETF /zigman2/quotes/209660484/composite XLF -0.35% dropped 2.8%. Shares of JPMorgan Chase & Co. /zigman2/quotes/205971034/composite JPM -1.05% , which was mentioned in the investigative news report, fell 4.2%.
Investors also weighed the potential market implications of Supreme Court Associate Justice Ruth Bader Ginsburg’s death, which looks poised to spark an intense battle over the nomination of her successor, complicating an already bitter presidential election race.