U.S. stock indexes skidded sharply lower Friday, after Texas tightened social-distancing rules in the wake of a record number of new coronavirus cases being reported nationwide.
Meanwhile, Investors were also paring the results of the Federal Reserve’s bank stress tests which resulted in a cap on dividends and stock buybacks.
How are benchmarks performing?
The Dow Jones Industrial Average traded 520 points, or 2%, lower at about 25,226; the S&P 500 index retreated 50 points, or 1.6%, at around 3,033, with the S&P’s financial sector sinking 3.8%, while the energy sector was 3.3% lower. All 11 sectors of the S&P 500 were trading solidly in negative territory on Friday.
Meanwhile, the tech-heavy Nasdaq Composite Index was heading 154 points lower to reach 9,864, a fall of about 1.5%.
For the week, the Dow was down 2.5% and the S&P 500 was looking at a 2.2% weekly decline, while the Nasdaq was on pace to fall 1.3% for the period.
What’s driving the market?
Investors have wrestled with rising daily rates of new U.S. coronavirus cases all week, and that has continued to cast a pall over the market on Friday.
Indeed, Texas Gov. Greg Abbott implemented restrictions on social gatherings in the Lonestar state and ordered all bars to re-close on Friday, making th e state the first to reverse some reopening measures after months of lockdowns.
The orders announced on Friday also come a day after the governor said he was freezing reopening plans in the state. Texas reported 6,426 new coronavirus cases Thursday, according to Johns Hopkins University data.
The stalled business reopening efforts in many U.S. states combined with a slow improvement in economic data, has led the equities market to reflect on expectations for a V-shaped economic recovery.
“The market has been threatened by anything that jeopardizes the economic recovery,” Quincy Krosby, chief market strategist at Prudential Financial, told MarketWatch. “What you are seeing is the market react to the headlines,” she said.
On Thursday, U.S. states saw a single-day record rise of 37,000 in infections, led by Florida, Texas, California and Arizona, surpassing the 36,188 level from April 24, according to analysis of data from Bloomberg.
Overall, total cases in the U.S. have topped 2.4 million and that increase, notably in southern and western states in the U.S., and has resulted in governors halting business reopening plans in, North Carolina, Louisiana and Kansas. However, governors in New York, New Jersey and Connecticut are proceeding with reopening efforts but imposing a 14-day quarantine for visitors coming from some southern states.
Krosby said that the key for some investors is determining the degree by which the rise in cases results in hospitalizations and deaths. “It will give us a sense of whether the therapeutic treatments are working,” she said.
Investors are also digesting the results of the Federal Reserve’s annual bank stress tests which requires banks to preserve capital by suspending share repurchases and cap dividend payments in the third quarter based on average net income over the past four quarters.
However, financial institutions got a boost on Thursday after the Federal Deposit Insurance Commission and Office of the Comptroller of the Currency said they are planning to loosen the restrictions imposed by the Volcker rule and allow banks to more easily make large investments into venture capital and similar funds, among other rule rollbacks.
In Europe, Christine Lagarde, president of the European Central Bank, said the worst of the COVID-19 pandemic may have passed. “We probably have passed the lowest point and I say that with some trepidation because of course there could be a second wave,” speaking during a summit on Friday.Lagarde did, however, warn that some of the economy could be permanently impacted.
After a gross domestic product contraction of 8.7% for 2020, the ECB estimates economic growth of 5.2% in 2021, and 3.3% in 2022.
In U.S. economic reports, consumer spending climbed in May to a record 8.2% after tumbling in April, as consumers, representing two-thirds of economic demand, used stimulus checks provided by the government to help Americans deal with job losses during the pandemic. However, personal incomes dropped, according to the report. The increase in spending, however, fell short of the 10% forecast of economists polled by MarketWatch and incomes sank 4.2% last month, reflecting mass unemployment and receding federal aid.
“Consumer demand will probably look good in June as well, supported by the reopening in the Northeast and a still-elevated savings rate,” wrote Jefferies analyst Aneta Markowska and Thomas Simons. “However, stimulus payments are now shrinking and dragging down overall income growth,” the wrote.
In other economic reports, the final results of the consumer-sentiment survey in June slipped to 78.1 from an initial 78.9, the University of Michigan said Friday.
Which stocks are in focus?
- Nike Inc. swung to a fourth-quarter loss and total sales dropped 38% despite a jump in online sales. The quarter’s online sales rose 75% with “strong double-digit increases” across geographies and made up about a third of total revenue for the quarter. Shares of Nike were down 4.4%.
- Amazon.com Inc. announced that it was purchasing self-driving car company Zoox for more than $1 billion, according to reports. The company’s stock was 0.5% lower. gps
- Shares of Gap Inc. surged 37% after the retailer reported that it was teaming up with hip-hop star Kanye West.
- Vaxart Inc. said Friday its oral COVID-19 vaccine has been selected to take part in a nonhuman primate challenge study funded by the U.S. government’s ‘Operation Warp Speed’ program, that aims to accelerate development of a vaccine. Shares were up 68%.
- Microsoft Corp. said Friday it will close all of its physical store locations, as part of the software and cloud giant’s new approach to retail. Its stock was down 2%.
- Shares of Inovio Pharmaceuticals Inc. fell 12% Friday, as biotechnology company was downgraded at Stifel Nicolaus on valuation concerns.
- Albertsons Companies Inc. shares were trading lower on Friday after it priced its initial public offering.
How are other assets performing?
West Texas Intermediate U.S. crude retreated 47 cents, or 1.1%, to $38.25 a barrel on the New York Mercantile Exchange. In precious metals, gold futures edged $1.10, or 0.1%, lower at $1,769.90 an ounce.
The 10-year Treasury note yield fell 1.3 basis points to 0.66% amid inflows into safe-haven assets. Bond prices move inversely to yields.
The greenback was virtually unchanged against a basket of its major rivals, based on trading in the ICE U.S. Dollar Index.
In global equities, the Stoxx Europe 600 index gained 1.1% and London’s FTSE 100 rose 1.5%.
In Asian markets, the Japanese Nikkei gained 1.1%, Hong Kong’s Hang Seng lost 0.9%, while South Korea’s Kospi advanced 1.1%. Markets in China were closed for a holiday.