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Stocks Close Sharply Lower; Dow Drops More Than 500 Points

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09/21/2020 | 05:16pm EDT

By Ben Eisen and Anna Isaac

The Dow Jones Industrial Average dropped more than 500 points, falling in tandem with oil and gold prices and sparking worry among some investors of further turbulence ahead.

The simultaneous declines across various asset classes spurred anxiety for some investors and traders who fear a repeat of the market turmoil of March. U.S. oil prices tumbled 4.4%, and gold, a traditional haven, fell 2.6% to its lowest close since late July.

Monday's losses were broad. Ten of the 11 sectors in the S&P 500 dropped, led by economically sensitive groups like materials and industrials, which both fell 3.4%. The technology sector, which has driven much of the stock market's remarkable rebound since March, was the only group to finish the day in the green, up 0.8%.

Stocks charged higher for much of the summer, but sentiment has soured in September. Investors say they are growing uneasy about the outlook for the U.S. economy as the prospect of an additional fiscal-stimulus package looks increasingly remote ahead of a heated U.S. election campaign season.

"The odds of us getting a stimulus package before the election are probably as close to zero as we are going to get," said Jim Tierney, chief investment officer for concentrated U.S. growth at AllianceBernstein. "The stocks that needed stimulus are getting hit hard today."

Shares of airlines, retailers and energy companies -- which have been battered this year during the pandemic -- were among the market's biggest losers. Delta Air Lines dropped $3.02, or 9.2%, to $29.82 while Kohl's fell $1.90, or 8.1%, to $21.50 and Halliburton declined $1.23, or 8.5%, to $13.22.

Those declines weighed on the major indexes. The Dow industrials closed down 509.72 points, or 1.8%, at 27147.70. A late-day rally in tech stocks including Apple and Microsoft helped the Dow pare its losses in the final hour of trading after earlier declining as much as 942 points.

The S&P 500 fell 38.41 points, or 1.2%, to 3281.06. The technology-laden Nasdaq Composite lost 14.48 points, or 0.1%, to 10778.80.

The declines extend the stock market's retreat into a fourth consecutive week, snapping a summer rally that had propelled the major indexes near record levels. The S&P 500 is off 8.4% from its Sept. 2 record, while the Nasdaq Composite is down almost 11%. The Dow has yet to reclaim its pre-pandemic high and is 8.1% below its February record.

A closely watched barometer of expected turbulence in U.S. stocks, the Cboe Volatility Index, jumped Monday to its highest level in weeks. Some investors said they expect the volatility to continue.

"I don't think we are going to see the lows that we saw in March. I do believe that overall the market has gotten a little ahead of itself," said Diane Jaffee, a senior portfolio manager for relative value strategies at TCW.

Shares of banks, whose profits are particularly sensitive to the economy, were also down. Wells Fargo dropped $1.09, or 4.3%, to $24.04, while Morgan Stanley fell $1.72, or 3.4%, to $48.36.

In commodities markets, analysts said the drop in oil prices was triggered by signals that Libya could renew its supply of oil to the global market at a time when demand for oil has dropped. Gold, meanwhile, pulled back as the dollar advanced.

Some investors sought safety in government bonds, pulling the yield on the benchmark 10-year Treasury note down to 0.670% from 0.694% Friday. Bond prices and yields move in opposite directions.

Investors said they were also unnerved by continuing tensions between the U.S. and China and the threat of renewed lockdowns in many places because of higher coronavirus infections.

Over the weekend, China's Ministry of Commerce laid out penalties for companies and individuals it deems to be "unreliable entities," including potential restrictions on staffing and investment in China, curbs on imports and exports, and fines.

The list is aimed at identifying foreign entities and individuals that could harm Chinese interests. No names have thus far been disclosed. The development is likely to add another stress point to the already strained relations between the U.S. and China, as it signals Beijing may step up retaliatory measures, investors said.

"There's the broader macro risk that this might be China starting to become more combative in its use of sanctions," said Edward Park, deputy chief investment officer at Brooks Macdonald. "That wasn't really on the markets' radar."

Elsewhere, shares of Oracle rose $1.07, or 1.8%, to $60.82 after President Trump said he has agreed in concept to a deal under which Chinese-owned video-sharing app TikTok will partner with Oracle and Walmart to become a U.S.-based company. The negotiations have stirred debate over national security and the future of the internet.

Shares of Illumina dropped $25.37, or 8.6%, to $270.13. The maker of machines that sequence genes will pay $7.1 billion in cash and stock for a developer of a long-sought blood test that promises to detect canc er early.

Nikola's stock plummeted $6.61, or 19%, to $27.58 as the company said founder and Executive Chairman Trevor Milton would step down from the electric-truck startup amid allegations from a short seller that he and the company had made false statements to investors.

Overseas, the pan-continental Stoxx Europe 600 fell 3.2%. Coronavirus cases have been rising across major European economies, leading to speculation that governments will be forced to implement new lockdowns that will curtail business and social activity across the region.

"The worry is definitely that we're going to see restrictions on economies and that's going to have a big negative impact going forward," said Altaf Kassam, head of investment strategy for State Street Global Advisors in Europe. "There's the noise from politicians across Europe on the threat of further lockdown, that we've reached a tipping point on the rate of infections."

Write to Ben Eisen at ben.eisen@wsj.com and Anna Isaac at anna.isaac@wsj.com

 


Stocks mentioned in the article
ChangeLast1st jan.
DJ INDUSTRIAL -0.28% 28241.86 Delayed Quote.-0.80%
NASDAQ 100 -0.16% 11662.547065 Delayed Quote.33.22%
NASDAQ COMP. -0.28% 11487.379942 Delayed Quote.28.35%
NIKOLA CORPORATION 10.52% 22.9372 Delayed Quote.100.78%
S&P 500 -0.18% 3438.6 Delayed Quote.6.07%
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