U.S. Stocks Tumble as Investors Grow Jittery

By Akane Otani, Caitlin Ostroff and Xie Yu

Stocks tumbled Thursday, sending the Dow Jones Industrial Average sliding more than 1,000 points, as heightened fears of a second wave of coronavirus infections sent investors out of risky assets.

For months, investors have been betting on the U.S. and other countries being able to reopen their economies without seeing another surge in coronavirus cases that might force them to backtrack. Stocks have risen accordingly, with the S&P 500 turning positive for the year as recently as Monday.

But new data have suggested the smooth reopening that investors have been hoping for may be increasingly difficult to achieve--darkening the outlook for the economy and the markets.

U.S. coronavirus cases have topped 2 million, with the death toll climbing past 111,000, according to data compiled by Johns Hopkins University. States from Florida to California to Texas are seeing spikes in coronavirus cases after having lifted restrictions put in place to limit the virus' spread.

"If we see those numbers coming back in the biggest economy in the world, then that's going to lead to a massive correction," said Altaf Kassam, head of investment strategy for State Street Global Advisors in Europe.

That's true especially given investors are already anticipating a slow and painful economic recovery. Federal Reserve Chairman Jerome Powell said Wednesday the labor market could take years to recover from the pandemic, and that millions of Americans could be unable to return to their old jobs or industries.

"Because Powell was incredibly dovish, it's finally settled that we're in this for the long haul. We're not going to recover quickly and there will be pain ahead," Mr. Kassam said.

The Dow shed 1,271 points, or 4.7%, to 25718, heading for its biggest pullback since March. The S&P 500 lost 4% and the Nasdaq Composite declined 3.1%.

The losses were broad, sending all 11 sectors of the S&P 500 lower.

Banks took a big hit, with Bank of America down 7.8% and Goldman Sachs off 6.7%. A darkening economic outlook and low interest rates for the foreseeable future threaten to crimp lending profitability of banks.

Shares of manufacturers also tumbled, with Caterpillar off 7.2% and Boeing down 11%. Both stocks are seen as a barometer of global industrial activity.

Although investors don't expect broad-based lockdowns to be reinstated, regional infection increases in the U.S. could prompt local measures to curtail the spread, which will weigh on economic recovery, said Hani Redha, a multiasset portfolio manager at PineBridge Investments.

"There are some areas that are looking concerning, and that is one of the things that is going to get the market's attention," he said.

Equities retreated in international markets too, with the pan-continental Stoxx Europe 600 dropping 4.1%.

Yields on European government bonds fell as eurozone finance ministers met to discuss a proposed rescue package to fund the region's recovery. Investors' expectations for the size and scope of the aid package have dimmed as some EU members have pushed back against an ambitious plan recently floated by the European Commission.

Markets aren't pricing in the likely disagreement that the proposal will face from some member nations, said James Athey, senior investment manager at Aberdeen Standard Investments.

Gold, which is also widely perceived as a haven asset during times of market turbulence, climbed 1.5%.

In the Asia-Pacific region, Hong Kong's Hang Seng Index fell 2.3% by the close of trading. Japan's Nikkei Stock Average lost 2.8%, logging its biggest one-day decline since the start of May, and Australia's S&P/ASX 200 fell 3.1%.

Write to Akane Otani at [e-mail], Caitlin Ostroff at [e-mail] and Xie Yu at [e-mail]