U.S. stock indexes closed at their lowest levels in about two weeks Friday, after Texas and Florida were forced to backtrack on reopening their economies as coronavirus cases rose further and a record number of new cases were reported nationwide.
Meanwhile, investors were also parsing the results of the Federal Reserve’s bank stress tests which resulted in a cap on dividends and stock buybacks.
How did benchmarks perform?
The Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA -0.46% closed 730.05 points, or 2.8%, lower at 25,015.55; and the S&P 500 index /zigman2/quotes/210599714/realtime SPX -0.81% retreated 74.71 points, or 2.4%, to close at 3,009.05, with the S&P’s financial sector /zigman2/quotes/210599854/delayed XX:SP500.40 -0.30% sinking 4.3%, and the energy sector /zigman2/quotes/210600521/delayed XX:SP500.10 -0.58% 3.5% lower. All 11 sectors of the S&P 500 closed deep into negative territory on Friday.
Meanwhile, the tech-heavy Nasdaq Composite Index /zigman2/quotes/210598365/realtime COMP -1.69% lost 259.78 points to reach 9,757.22, a fall of 2.6%.
For the week, the Dow lost 3.3%, the S&P 500 notched a 2.9% decline, and the Nasdaq fell 1.9% for the period.
What drove the stock market?
Investors have wrestled with rising daily rates of new U.S. coronavirus cases all week and that again cast a pall over the stock market on Friday.
U.S. states saw a single-day record rise of 37,000 in infections on Thursday, led by Florida, Texas, California and Arizona, surpassing the 36,188 level from April 24, according to analysis of data from Bloomberg .
That case count “blew out any of the previous records,” said Will Geisdorf, senior research analyst with Sarasota, Fl-based Allegiant Private Advisors. “I think the markets are looking at that and starting to discount the potential for a V-shaped recovery.”
As evidence mounts that consumers are losing confidence, there will be pressure on policymakers to deliver another round of fiscal stimulus, Geisdorf said in an interview. “That’s what markets need to get out of this period of consolidation and volatility and continue higher. We’ve had the best 50-day period in market history. Some sort of correction was needed to relieve excessive optimism.”
Governors in Texas and Florida ordered all bars to close again on Friday, making the states the first to reverse some reopening measures after months of lockdowns . Texas reported 6,426 new coronavirus cases Thursday, according to Johns Hopkins University data, and Florida reported over 8,900.
Overall, total cases in the U.S. have topped 2.4 million and that increase, notably in southern and western states in the U.S., has also resulted in business reopening plans being halted in North Carolina, Louisiana and Kansas. However, governors in New York, New Jersey and Connecticut are proceeding with reopening efforts but imposing a 14-day quarantine for visitors from some hard-hit states.
“The market has been threatened by anything that jeopardizes the economic recovery,” Quincy Krosby, chief market strategist at Prudential Financial, told MarketWatch. “What you are seeing is the market react to the headlines,” she said.
The key for some investors is determining the degree by which the rise in cases results in hospitalizations and deaths, Krosby said. “It will give us a sense of whether the therapeutic treatments are working,” she said.
Investors are also digesting the results of the Federal Reserve’s annual bank stress tests which requires banks to preserve capital by suspending share repurchases and cap dividend payments in the third quarter based on average net income over the past four quarters.