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Dow Falls 730 as Fed Action Hits Bank Stocks, Virus Cases Surge

Dow Falls 730 as Fed Action Hits Bank Stocks, Virus Cases Surge

Friday, 26 June 2020 03:06 PM

Wall Street's major indexes tumbled more than 2% on Friday as several U.S. states imposed business restrictions in response to a surge in coronavirus cases.

Some U.S. states that were spared the brunt of the initial coronavirus outbreak or moved early to lift restrictions are seeing a resurgence in new infections. On Friday, Texas and Florida ordered bars to close down again.

"You're seeing a pretty dramatic increase in cases," said Kevin Grogan, managing director of investment strategy at Buckingham Strategic Wealth in St. Louis. "If people start feeling again like it's not safe to eat out or go shopping, that could have a really negative impact on the stock market."

A Wall Street Journal report that the Phase 1 U.S.-China trade deal could be at risk placed additional pressure on U.S. stocks. According to that report, Chinese officials warned that "meddling" in Hong Kong and Taiwan could lead Beijing to back away from its commitment to purchase U.S. farm goods.

"It added another log into the risk aversion fire," said Edward Moya, senior market analyst at OANDA in New York, of the report on China.

Among sectors, financial, communication services and energy shares outpaced the broader S&P 500 in declines. S&P 500 bank shares plummeted 6.1% after the Federal Reserve limited dividend payments and barred share repurchases until at least the fourth quarter following its annual stress test.

Renewed concerns over the novel coronavirus pandemic have threatened to derail a strong rally for Wall Street that has erased much of the S&P 500's steep losses from March. The benchmark index ended below its 200-day moving average, an indicator of long-term momentum.

The uptick in coronavirus cases likely triggered a test of that technical level, said Jim Paulsen, chief investment strategist at The Leuthold Group in Minneapolis.

The Dow Jones Industrial Average fell 730.05 points, or 2.84%, to 25,015.55, the S&P 500 lost 74.71 points, or 2.42%, to 3,009.05 and the Nasdaq Composite dropped 259.78 points, or 2.59%, to 9,757.22.

For the week, the S&P 500 fell 2.87%, the Dow lost 3.31%, and the Nasdaq shed 1.87%.

Facebook Inc shares shed 8.3%, weighing the most on the S&P 500, after Unilever PLC and Verizon Communications Inc joined an advertising boycott that called out the social media giant for not doing enough to stop hate speech on its platforms.

Nike Inc shares dropped 7.6% as the footwear maker, hurt by store closures due to the pandemic, posted a surprise quarterly loss.

Gap Inc shares surged 18.8% after the retail chain entered a 10-year deal with rapper and fashion designer Kanye West to create a line of clothing under his Yeezy brand.

Friday also marked the reconstitution of the FTSE Russell indexes, including the large-cap Russell 1000 and small-cap Russell 2000. Daily trading volume is often among its highest levels of the year during the reconstitution, though volume this year has spiked on several occasions amid steep market sell-offs.

Volume on U.S. exchanges was 16.43 billion shares, compared to the 13.44 billion average for the full session over the last 20 trading days.

Declining issues outnumbered advancing ones on the NYSE by a 3.99-to-1 ratio; on Nasdaq, a 3.57-to-1 ratio favored decliners.

The S&P 500 posted five new 52-week highs and no new lows; the Nasdaq Composite recorded 59 new highs and 28 new lows.

GLOBAL MARKETS

Global equities sank and perceived safe-haven assets like U.S. Treasuries and gold gained on Friday as investors weighed hopes that Europe will continue to rebound from the coronavirus pandemic's economic damage against concerns over a record surge in new COVID-19 infections in the United States.

The euro zone is "probably past" the worst of the economic crisis, European Central Bank President Christine Lagarde said, while urging authorities to prepare for a possible second wave.

There were at least 39,818 new coronavirus cases across the United States on Thursday, the largest one-day increase yet. The governor of Texas temporarily halted the state's reopening as infections and hospitalizations surged.

MSCI's gauge of stocks across the globe shed 1.46% following broad declines in Europe and slight gains in Asia. The index is up approximately 40% since its March lows.

"Even though we continue to see some pretty scary virus numbers coming out of the U.S., it's not really dented sentiment – not to any sustained degree at least," said Timothy Graf, head of macro strategy for EMEA at State Street Global Markets.

Concerns about the economic fallout from the surge in U.S. coronavirus cases helped bolster perceived safe havens. The dollar index rose 0.07%, while benchmark 10-year notes last rose 10/32 in price to yield 0.643%, from 0.674% late on Thursday.

Spot gold added 0.5% to $1,769.63 an ounce. U.S. gold futures gained 0.15% to $1,772.50 an ounce..

Credit Suisse changed its position on global equities to "neutral" from "overweight," saying it was taking profits after the recent rally, but kept its overweight positions in credit markets.

"The upcoming earnings season, a recent uptick in coronavirus infection numbers and political developments in the USA create a challenging backdrop for financial markets going into the summer," said Michael Strobaek, Credit Suisse's global chief investment officer.

Record high inventories and fears of declining demand pushed oil prices lower. U.S. crude recently fell 1.6% to $38.10 per barrel and Brent was at $40.65, down 0.97% on the day.

© 2020 Thomson/Reuters. All rights reserved.


   
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Wall Street's major indexes tumbled on Friday as several U.S. states imposed business restrictions in response to a surge in coronavirus cases.
wall street, stock, market, dow, fed
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2020-06-26
Friday, 26 June 2020 03:06 PM
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