Stocks Close Sharply Lower on Rising Coronavirus Cases

By Will Horner and Juliet Chung

U.S. stocks sold off on Wednesday, as rising coronavirus infections shook investors' confidence in the global economic recovery and sent them toward the safety of Treasurys and the dollar.

All three major indexes were on pace for their worst week since the week ending March 20. The Dow industrials lost 942 points, or 3.4%, its fourth losing session in a row.

The S&P 500 fell even more, 3.5%, its third consecutive retreat. The benchmark has slipped more than 7% from its record closing level in early September and its gains for the year now stand around 1.3%.

The Nasdaq Composite dropped 3.7%. The stock prices of Facebook, Google parent Alphabet and Twitter dropped roughly 5% each after their chief executives squared off against U.S. senators in a congressional hearing over their companies' roles moderating public discourse.

Stocks have slid lower this week on a raft of uncertainties, sparking discussion from investors about whether the sell-off marked a buying opportunity or a turn in the market.

Worsening coronavirus case numbers may make more stringent restrictions imperative across the U.S. and Europe, potentially dealing a setback to a fragile economic recovery. New U.S. cases climbed back above 70,000 as states across the country continued to report high levels of fresh infections.

"A month ago, the narrative in the market was very much that lockdowns would be limited and targeted, and so would have a smaller impact on the economy," said Hugh Gimber, global market strategist at J.P. Morgan Asset Management. "But now, what we are seeing is broader concerns that lockdowns might be wider and have a much wider impact."

The U.S. reported more than 73,200 new cases Tuesday, the second daily increase in a row, according to data compiled by Johns Hopkins University.

Susan Webb, founder and chief investment officer of outsourced investment firm Appomattox, said the market was factoring in fears that shutdowns would stall 20% of the domestic economy -- that related to sectors such as travel, entertainment and restaurants -- and hit the economies of tourism-dependent countries such as Spain and Italy.

She also attributed some of the sell-off to investors rebalancing their portfolios as they assess the virus's hold in different geographies.

"There is a rotation going on," Ms. Webb said. "A lot of people are taking some money off the table in U.S. equities where they've become substantially overweight as Europe has sold off, and there's a recognition Asia is recovering faster and has gotten control of this pandemic."

Investors also remain leery about the U.S. election, and whether delays in counting mail-in ballots may lead to uncertainty in the days after the Nov. 3 election. The S&P 500 as of midday was on pace for its worst week before the presidential election on record.

Hopes have also faded that talks between the White House and Democrats would produce agreement over a fresh package of stimulus measures before the election, propping up the economic recovery.

"When you hit these record case numbers it grabs people's attention," said Jeff Mills, chief investment officer at Bryn Mawr Trust. "And when you have that combined with a breakdown in stimulus talks it combines into this negative catalyst."

Another batch of corporate earnings reports were also being scrutinized, and Ford and Visa are set to report just after the market closes.

A rare bright spot Wednesday was General Electric, whose shares were up 8% after it surprised analysts with a third-quarter profit. Automatic Data Processing shares jumped more than 7% after quarterly profits rose year-on-year.

Microsoft's stock was down 4.1% despite the company saying that sales had jumped thanks to surging demand for its videogames and cloud-computing services amid the pandemic.

Investors' expectations are too high, Mr. Mills said, and may lead to stocks taking a beating.

"When companies miss or even just meet expectations, you are seeing negative reactions in the stocks: that tells me valuations are quite optimistic," said Mr. Mills. "Earnings expectations are quite high, and if companies underperform, I am not sure the market will react to that well."

Commodity markets were also under pressure with Brent crude, the international benchmark for oil, falling 5% to $39.12 a barrel.

As risk appetite waned, investors sought the safety of U.S. government bonds. The yield on the 10-year Treasury slipped to 0.764%, from 0.778% on Tuesday.

The ICE U.S. Dollar Index, which measures the greenback against a basket of currencies, gained 0.8% as investors worried about fresh lockdowns. The dollar typically rises when investors pull out of stocks due to its status as a haven currency.

European markets have been particularly hard hit as the Continent grapples with a surge of new cases and governments in France and Germany consider stricter lockdowns. The pan-continental Stoxx Europe 600 fell 2.95% to its lowest level since May.

Investors were also shedding riskier European bonds, resurrecting worries that Europe will have trouble pushing through another round of relief measures if the new lockdowns make increased spending necessary.

Write to Will Horner at [e-mail] and Juliet Chung at [e-mail]

(END) Dow Jones Newswires

10-28-20 1618ET