Wall Street Slams Into Reverse 07/13 16:20
Wall Street got a painful reminder that the coronavirus pandemic isn't going
away, and a big early gain for stocks suddenly flipped to losses after
California showed how it's still scarring the economy.
NEW YORK (AP) -- Wall Street got a painful reminder that the coronavirus
pandemic isn't going away, and a big early gain for stocks suddenly flipped to
losses after California showed how it's still scarring the economy.
The S&P 500 fell 0.9%, with all the losses accumulating in the last hour of
trading, after California said it will extend closures of bars and indoor
dining across the state, among other restrictions. It's one of many states
across the U.S. West and South where coronavirus counts are accelerating and
threatening the budding recovery that just got underway for the economy.
The announcement from California, which accounts for nearly 15% of the
country's economy, combined with an escalation by the White House in its
tensions with China to knock the market down from its earlier gain of 1.6%.
Technology stocks took the hardest hits, highlighted by Microsoft's swing
from an early gain of 1% to a loss of 3.1%. It's a sharp step back for
tech-oriented giants, which have been cruising higher through the pandemic on
bets that they can keep growing almost regardless of the economy.
"There's an increasing sense that the recovery from the virus related
shutdown is going to be more drawn out, more uneven than maybe the market was
looking for," said Willie Delwiche, investment strategist at Baird. "And you
add on top of that a number of tech companies that had run up tremendously over
the past couple of weeks, so there's a little bit of shaking out there as well."
The tech losses helped drag the Nasdaq composite down 226.60 points, or
2.1%, to 10,390.84. The Dow Jones Industrial Average squeaked out a gain of
10.50 points, or less than 0.1%, to 26,085.80. The S&P 500 dropped 29.82 to
In a signal of downgrading expectations for the economy, Treasury yields
fell and smaller stocks did worse than their larger rivals. The Russell 2000
index of small-cap stocks lost 1.3%.
The volatility struck markets just as earnings reporting season gets
Several of the country's biggest banks are slated to report their results
Tuesday, including JPMorgan Chase, and the expectations are almost universally
dreadful across the S&P 500.
Analysts say the biggest U.S. companies likely saw their earnings per share
plummet nearly 45% from April through June, compared with year-ago levels. That
would be the sharpest drop since the depths of the Great Recession in 2008,
according to FactSet.
Investors are expecting banks, which traditionally kick off each earnings
season every three months, to say they've had to set aside billions of dollars
to cover loans potentially going bad due to the pandemic-caused recession, for
For energy stocks, whose earnings reports get going later in July, Wall
Street expects profits to have disappeared completely. It's not surprising
given how prices in one corner of the U.S. oil market momentarily dipped below
zero during the quarter as demand disappeared.
Investors have largely seemed willing to give a pass for such terrible
results in the latest quarter and maybe even for a couple more. Instead,
investors are focusing on a hopeful return to profit growth in 2021 and beyond.
That's helped the S&P 500 climb back to within 7% of its record set in February.
The hope is that the economy and declines in corporate profits bottomed out
in the spring and will continue to improve. The job market, retail sales and
other measures of the economy have already begun showing some budding
Of course, all the optimism is colliding with fears that the recovery could
be short-lived due to the jumping coronavirus counts in California and other
global hot spots. Monday's sudden dive for markets after California's
announcement was reminiscent of similar recent market reactions after Florida
and other Sun Belt locations have announced rising numbers of known infections
If states continue to bring back restrictions on their economies to slow the
resurgence, it could choke off the fragile economic improvements just as they
"The most important thing is COVID-19 data," said Darrell Cronk, chief
investment officer of Wells Fargo Wealth and Investment Management. "That's
going to affect whether we have to slow down or stop economic activity in the
back half of the year."
Such concerns have helped the price of gold recently rally to its highest
level since September 2011, shortly after it set its record. Gold added $12.20
to settle at $1,814.10 per ounce Monday.
Another measure of nervousness in the market also ticked higher. The VIX,
which shows how much volatility traders expect from the S&P 500 in upcoming
weeks, rose 18%.
Also adding to nervousness in the market was the White House's decision to
reject nearly all Chinese maritime claims in the South China Sea. The world's
largest economies have been sparring over everything from the coronavirus
pandemic to human rights.
PepsiCo added 0.3% even though it said its profit fell 19% last quarter from
a year earlier. Results were better than Wall Street had forecast, leading to
the lift. But the company behind Frito-Lay and SodaStream also said the future
looks so uncertain given the pandemic that it won't offer any predictions about
its sales and profits for the rest of the year.
European and Asian markets ended higher.
The yield on the 10-year Treasury fell to 0.61% from 0.63% late Friday. It
tends to move with investors' expectations for the economy and inflation.
Benchmark U.S. crude fell 1.1% to settle at $40.10 per barrel. Brent crude,
the international standard, fell 1.2% to $42.72 per barrel.