The selling on Wall Street accelerated Wednesday morning, pulling stocks sharply lower, as investors turned cautious after new coronavirus cases in the U.S. climbed to the highest level in two months.
The S&P 500 was down 2.4%, giving back all of its gains for the week. Technology companies, which have been leading the market higher as it bounced back from a plunge in March, accounted for the biggest slice of the market’s pullback. Financial, health care, communication services and industrial sector stocks also took heavy losses. Energy stocks dropped as the price of oil fell sharply.
While economic data is pointing to a recovery from the spring lockdowns that are being eased in the U.S. and other countries, the rise in new infections is stoking worries that the reopening of businesses may have to be curtailed again.
Cruise lines, which would stand to suffer greatly if travel restrictions are extended, were among the biggest losers in early trading. Norwegian Cruise Line, Carnival and Royal Caribbean Cruises were each down more than 9%.
The Dow Jones Industrial Average was down 648 points, or 2.5%, to 25,507. The Nasdaq, which was coming off its second all-time high this week, was down 2.1%. The Russell 2000 index of small company stocks gave up 2.5%.
The market has been mostly in rally mode since April as investors focused on the prospects for an economic turnaround as broad areas of the economy reopened. Recently, some encouraging economic reports have fueled optimism that the reopening of businesses in the U.S. and elsewhere could pull the economy out of a deep recession sooner rather than later.
But the recent surge in new infections is undercutting some of that optimism. New coronavirus cases in the U.S. have surged to their highest level in two months after trending down for more than six weeks. While early hot spots like New York and New Jersey have seen cases steadily decrease, the virus has been hitting the south and west. Several states on Tuesday set single-day records, including Arizona, California, Mississippi, Nevada and Texas.
The trend now has U.S. coronavirus cases back up to where they were at the height of the outbreak. On Tuesday, Federal health officials told Congress to brace for a second wave of coronavirus infections in the fall and winter of this year.
Analysts are warning that, despite recent market rallies, there is little reassurance infections won’t keep spreading, given the growing numbers in some parts of the U.S., Brazil and Asia.
Prakash Sapal, senior economist for ING, said the focus is slowly shifting back to the COVID-19 pandemic from optimism about a rebound from loosening lockdown restrictions.
“The recent acceleration in infections has rekindled concern that governments will be forced to shut down their economies once again, squandering the chance for the much-hoped-for economic bounce back,” he said in a report.
Major stock indexes in Europe also fell broadly. Germany’s DAX dropped 2.8%, while France’s CAC 40 slid 2.3%. Britain’s FTSE 100 was down 2.5%. Markets in Asia closed mostly higher.
The yield on the 10-year Treasury note rose to 0.71% from 0.70% late Tuesday. It tends to move with investors’ expectations for the economy and inflation.
In energy trading, benchmark U.S. crude oil slid 5.5% to $38.13 a barrel. Brent crude, the international standard, was down 4.1% to $40.96.