Global markets cooled off on Tuesday, retreating as coronavirus concerns re-emerged. It follows a five-day rally on optimism about a continued economic recovery and hopes about further expanded fiscal and monetary policy support.
Selling accelerated in the last hour of trading. The Dow Jones Industrial Average closed down 397 points, or 1.5%. The S&P 500 and Russell 2000 fell 1.1% and 1.9%, respectively. The Nasdaq Composite dipped into negative territory in the afternoon, slipping 0.9% by the close.
There wasn’t one overarching trigger for the bout of selling, just that stocks had drifted meaningfully higher over the past week and some reversal seemed to be due. It continues much of June’s pattern of a daily or weekly back and forth between optimism about a continued economic recovery, versus the threat of rising coronavirus cases prompting new lockdowns or changes in consumer behavior and setting that recovery back.
On the coronavirus front, the confirmed case numbers in several southern and southwestern states have continued to get much worse, hospitalizations have gotten only slightly worse, and deaths have declined slightly. (The past few days of data have been a bit messy, thanks to uneven delays in reporting due to the holiday weekend.) A consensus is emerging among many on Wall Street that the current outbreak dynamic won’t necessarily lead to widespread economic lockdowns, but that consumers following the news and afraid of falling ill or infecting others will limit their activity on their own.
That’s particularly bad news for travel, hospitality, dining and leisure-related industries and firms, but should allow the recovery in many other sectors to continue.
The Shanghai Composite, which surged nearly 6% on Monday after an editorial in state media underlined the importance of a stock-market rise, added another 0.4% on Tuesday. It extends a blistering rally in Chinese shares over the past week. Elsewhere in Asia, the Nikkei 225 ended 0.4% lower and the Hang Seng declined 1.4% after also posting strong gains on Monday.
German industrial production rebounded a slower-than-forecast 7.5% in May, according to data released Tuesday. The European Commission lowered its euro area gross domestic product forecast, now seeing a 8.7% drop versus a previous projection of a 7.7% downturn.
The Stoxx Europe 600 index closed down 0.6%, with the French CAC 40 off 0.7%, Germany’s DAX 0.9% lower, and the U.K.’s FTSE 100 slipping 1.5%
“The news-flow on the coronavirus and its impact remains perturbing, from the evidence of a leveling off in high-frequency U.S. economic data over the past couple of weeks due to the wave of infections across the south and west, to the six-week lockdown today reimposed on metropolitan Melbourne, and a sixth successive day of 100-plus new cases in Tokyo too,” said Chris Scicluna, head of research for Daiwa Capital Markets in London.
Atlanta Federal Reserve President Raphael Bostic told the Financial Times the regional central bank was “trying to figure out whether this leveling off is something that is a more sustained pattern, or just a pause.”
Safe haven assets rose on Tuesday as stocks slipped. The yield on the 10-year U.S. Treasury note fell 3 basis points, or hundredths of a percentage point, to 0.650%, as the price of the securities rose. The price of gold gained 0.9%, to $1,804.20 an ounce, its highest level since 2011. And the U.S. Dollar Index, or DXY, added 0.3%. It measures the price of the greenback against a basket of other currencies.
Meanwhile, oil reversed earlier declines on demand worries. The price of WTI crude settled essentially flat, down a penny to $40.62 a barrel. Brent crude slipped 2 cents to $43.08 a barrel.
On the corporate news front, residential solar-panel installer SunrunInc. (ticker: RUN) said it would buy rival Vivint Solar (VSLR) for about $3.2 billion, including debt. Sunrun’s stock surged 22.6% while Vivint Solar’s jumped 38.1%.
Carnival (CCL) shares dropped 6.6% after the cruise operator said it was canceling several trips that were slated to start this year as well as trans-Atlantic trips planned for next year. Other cruise line stocks also sold off, with Royal Caribbean Cruises (RCL) and Norwegian Cruise Line (NCLH) closing down 4.9% and 4.3%, respectively.
Regeneron Pharmaceuticals (REGN) shares gained 2.2% after receiving $450 million from the U.S. government under “Operation Warp Speed” to develop a coronavirus treatment. Novavax shares (NVAX), meanwhile, surged 31.6% after receiving $1.6 billion under the same program for the development of a coronavirus vaccine.
Tesla (TSLA) stock continued its vertiginous rally, with shares up 1.3% Monday following a series of raised price targets from the analyst community. Many are simply playing catch up with the soaring stock price, which surpassed $1,400 a share on Tuesday.
Another hot electric-vehicle stock, China’s NIO (NIO), rose 14.9% to a new high. It caps a stunning rally over the past week, in which shares have soared about 70%. It’s NIO stock’s first record close since Sept. 13, 2018—its second day of trading.