Wall Street Retreats on Tuesday 07/07 16:06
(AP) -- Wall Street's recent string of big gains came to an abrupt stop
Tuesday as stocks closed broadly lower following a pullback in markets overseas.
The S&P 500 fell 1.1% after spending most of the day in the red. The
sell-off snapped the index's five-day winning streak. Technology stocks, banks
and companies that rely on consumer spending accounted for a big slice of the
slide, which accelerated toward the end of the day. Bond yields fell and the
price of gold rose, another sign of caution in the market.
Optimism that the economy is on the mend as businesses reopen has helped
drive stocks higher. But the recent surge in confirmed new coronavirus cases
has clouded hopes for a relatively quick economic turnaround. Investors are
also girding for what the next few weeks will reveal about the health of
corporate America as companies begin reporting their second-quarter results.
"It's not unusual for these five-day runs to be met with a bout of
profit-taking, especially given the headlines on the virus," said Quincy
Krosby, chief market strategist at Prudential Financial. "When you move toward
overbought conditions it doesn't take much for the market to burn off some of
The selling followed a deeper pullback in France, Germany and elsewhere
after the European Union's executive arm said this year's recession caused by
the coronavirus pandemic will be deeper than forecast. It also said next year's
expected rebound could be weaker than expected.
The S&P 500 dropped 34.40 points to 3,145.32. The Dow Jones Industrial
Average fell 396.85 points, or 1.5%, to 25,890.18. Big technology stocks helped
drive early gains for the Nasdaq, but they faded by afternoon. The index came
off an all-time high, losing 89.76 points, or 0.9%, to 10,343.89.
Small company stocks took the heaviest losses. The Russell 2000 index slid
26.89 points, or 1.9%, to 1,416.
The U.S. stock market has been churning over the last month, with big daily
moves up and down keeping it roughly in place. It's been a small-scale version
of the market's movements since the start of the year, when a nearly 34% plunge
on worries about the pandemic-caused recession quickly gave way to a tremendous
rally that brought the S&P 500 nearly back to its record level.
Lifting markets higher on one end are reports showing budding improvements
in the economy. The job market, retail sales and other economic indicators are
all still well below where they were before the pandemic struck. But they've
stopped plummeting and have begun to grow again as governments relax
restrictions meant to slow the spread of the coronavirus.
That's combined with unprecedented amounts of aid from central banks and
governments around the world to prop up markets. It also helped send the S&P
500 up 1.6% on Monday, following up on a 4% rise the prior week, which itself
helped cap the best quarter for the index since 1998.
"The economic data that has come out over the past couple of months has
actually beaten even the most optimistic economists, so in that scenario it's
not surprising to see a euphoria-driven rally in the market," said Megan
Horneman, director of portfolio strategy at Verdence Capital Advisors.
But pulling markets lower on the other end are worries that the optimism is
overdone. The pandemic isn't going away, with infection levels worsening across
wide swaths of the U.S. South and West, among other global hotspots. The
concern is that spreading infections could keep households and businesses
nervous and scare them away from spending. In the worst-case scenario, it could
force governments to bring back some of the restrictions that sent the economy
into its sudden recession.
Such worries spilled through markets Tuesday after the European Commission
unveiled its more dour economic forecasts for 2020 and 2021.
The commission said the joint economy of the 27 nations in the European
Union will shrink 8.3% this year, before growing 5.8% in 2021. In the previous
forecasts released in May, it had forecast the economy would contract about
7.5% this year and bounce back 6% next year.
Underscoring the fragility, a separate report showed that industrial
production in Germany rebounded by less than economists expected in May, and
remains far below levels from before the pandemic caused factories to close.
Germany's DAX lost 0.9%, while France's CAC 40 fell 0.7%. The FTSE 100 in
London dropped 1.5%. Markets in Asia also fell.
In the U.S. market, airlines and stocks of other companies that most need
the economy to get closer to normal had the sharpest losses.
United Airlines slid 7.6%, American Airlines dropped 7% and mall-owner Simon
Property Group dropped 4.4%.
Energy stocks fell 3.2% for the largest loss among the 11 sectors that make
up the S&P 500. They've swung sharply with expectations for the economy's
health and demand for oil and gasoline. Devon Energy lost 7.3%, while Valero
Energy fell 5.9%.
Benchmark U.S. crude slipped a penny to settle at $40.62 per barrel after
earlier flipping between losses and gains. Brent crude, the international
standard, fell 2 cents to close at $43.08 per barrel.
The yield on the 10-year Treasury slipped to 0.64% from 0.68% late Monday.
It tends to move with investors' expectations for the economy and inflation.