By Caitlin Ostroff and Alexander Osipovich
The Dow Jones Industrial Average slipped Monday, after hitting a record last week, as investors worried that elevated Covid-19 infection levels could weigh on economic growth through the winter months.
The blue-chip index ended lower by 0.5%. The S&P 500 dropped 0.2%, while the technology-heavy Nasdaq Composite ticked up 0.5%.
Stocks have rallied to records in recent weeks on brightening economic prospects due to the development of Covid-19 vaccines. But rising coronavirus infection levels and their potential impact on the rebound is weighing on sentiment. New restrictions intended to slow the spread of the virus in California went into effect Sunday night, after the number of people hospitalized in the U.S. because of Covid-19 hit another record.
"For U.S. growth, the vaccine is not going to have a substantial impact on this third wave," said James McCormick, a strategist at NatWest Markets. "The U.S. growth picture in the very near term is clearly tilting lower."
Data released Friday showed that U.S. job growth slowed sharply in November, suggesting the labor-market recovery is losing steam amid the surge in coronavirus cases and new business restrictions.
"The V-shaped recovery has kind of flatlined," said Scott Clemons, chief investment strategist at Brown Brothers Harriman. Still, stock investors have kept the market near records due to expectations that the U.S. economy will normalize after distribution of a coronavirus vaccine, he added.
In the near term, the rising case levels and faltering recovery could encourage Congress to pass a new fiscal-stimulus package, some investors said. An expanding, bipartisan group of lawmakers has been trying to settle on a coronavirus-relief agreement to help businesses and families through March. Lawmakers and aides said Sunday that they hoped to have legislative text ready early this week.
"It will focus the minds of Congress and help push things forward," said Altaf Kassam, head of investment strategy for State Street Global Advisors in Europe. "The market feels like there is enough to worry about that a fiscal stimulus could get enacted."
Exxon Mobil shares dropped 1.9% after The Wall Street Journal reported that the oil giant faces the threat of a proxy fight from a newcomer activist investor.
Eastman Kodak shares surged 60%. A government watchdog agency found no wrongdoing in the process that created a now-halted U.S. loan to Kodak, according to a copy of the assessment reviewed by the Journal.
Overseas, the pan-continental Stoxx Europe 600 declined 0.3% as trade talks between the European Union and the U.K. entered a crucial stage. The British pound fell 0.8% against the dollar following reports suggesting that Brexit negotiations have broken down.
"It does appear that the markets are beginning to believe we are arriving at a very significant moment," said Derek Halpenny, head of research for global markets in the European region at MUFG Bank. Investors are paying attention to the risk that the two sides won't reach agreement on a trade deal, he said.
Hong Kong's Hang Seng Index closed 1.2% lower following a Reuters report that the U.S. is readying sanctions against Chinese officials over their alleged role in disqualifying certain Hong Kong opposition lawmakers.
Shares of some companies that the U.S. government says support China's military fell in Hong Kong and Chinese trading, after index compiler FTSE Russell said it would drop eight Chinese stocks from major indexes.
In bond markets, the yield on the 10-year U.S. Treasury note declined to 0.928%, from 0.967% on Friday. Yields fall when bond prices rise.
Write to Caitlin Ostroff at caitlin.ostroff@wsj.com and Alexander Osipovich at alexander.osipovich@dowjones.com
(END) Dow Jones Newswires
12-07-20 1618ET
