Investors, No Longer in Denial About Grim Outlook, Drive Market Down

At least for a day, reality triumphed over hope on Wall Street.

After a frenzied, almost unstoppable three-month climb that seemed to defy both gravity and logic, the stock market plunged on Thursday, as investors decided they could no longer go on behaving as if the American economy had already recovered from the pandemic.

The signals leading to this moment were hard to ignore, even for the most bullish of investors. Coronavirus infections are rising in 21 states. Congress is divided on extending more aid. And on Wednesday, the Federal Reserve chair, Jerome H. Powell, warned that the depth of the downturn and pace of the recovery remained “extraordinarily uncertain.”

For investors, who often make buying and selling decisions by looking at the future, it was altogether too much.

Stocks suffered their worst drop in nearly three months as the S&P 500 stock index fell 5.9 percent — just days after it had recouped its losses for the year. The Dow Jones industrial average dropped nearly 1,900 points, or 6.9 percent. Oil prices also cratered, reflecting the sudden unease that swept across financial markets.

“Chairman Powell threw a bucket of cold water on the thought that the economy is going to go back to where it was in 2019 any time soon,” said Matt Maley, chief market strategist at Miller Tabak, an asset management firm. He added that the market was “ripe for a pullback anyway.”

The rally that hit a pothole on Thursday began in late March after the Fed signaled that it would create as much new money as needed to steady cratering financial markets, and the federal government provided an economic rescue package worth trillions of dollars. The twin actions reassured investors that the government would not let the bottom fall out of the market, giving them the confidence to begin buying stocks again.

Even as tens of millions of Americans applied for unemployment benefits and the national unemployment rate spiked to its highest level since the Great Depression, the S&P 500 rallied by nearly 45 percent. It was the fastest recovery off a market low for the benchmark index since 1933.

In recent weeks, investors couldn’t stop buying the stocks of companies beaten down by the virus, betting that they would rebound quickly as states reopened. But early data from some states that have eased quarantine restrictions, such as Texas and Arizona, have been worrisome. There has been a resurgence of the virus in those states, even as cases in the United States topped two million. On Wednesday, Texas set a record for hospitalizations — which have increased 42 percent in the state since Memorial Day — for the third consecutive day.

“The idea that Covid is fully behind us, or that a V-shaped recovery is in front of us, were put on hold today,” said Steve Sosnick, chief strategist at Interactive Brokers in Greenwich, Conn.

Even if the rise in cases doesn’t lead to another large-scale lockdown, analysts say it does dash hopes for a return to a more normal environment over the summer and makes a full rebound in particularly exposed industries less likely. And that dragged down some stocks on Thursday.

“Travel and leisure — call it the epicenter stocks — are the ones getting hit the most,” said King Lip, chief strategist at Baker Avenue, a wealth management firm in San Francisco. The cruise lines Norwegian and Carnival were down 16.5 percent and 15.3 percent on Thursday, while United and American Airlines both tumbled roughly 16 percent. Boeing plunged 16.4 percent.

  • Updated June 5, 2020

    • Does asymptomatic transmission of Covid-19 happen?

      So far, the evidence seems to show it does. A widely cited paper published in April suggests that people are most infectious about two days before the onset of coronavirus symptoms and estimated that 44 percent of new infections were a result of transmission from people who were not yet showing symptoms. Recently, a top expert at the World Health Organization stated that transmission of the coronavirus by people who did not have symptoms was “very rare,” but she later walked back that statement.

    • How many people have lost their jobs due to coronavirus in the U.S.?

      The unemployment rate fell to 13.3 percent in May, the Labor Department said on June 5, an unexpected improvement in the nation’s job market as hiring rebounded faster than economists expected. Economists had forecast the unemployment rate to increase to as much as 20 percent, after it hit 14.7 percent in April, which was the highest since the government began keeping official statistics after World War II. But the unemployment rate dipped instead, with employers adding 2.5 million jobs, after more than 20 million jobs were lost in April.

    • Will protests set off a second viral wave of coronavirus?

      Mass protests against police brutality that have brought thousands of people onto the streets in cities across America are raising the specter of new coronavirus outbreaks, prompting political leaders, physicians and public health experts to warn that the crowds could cause a surge in cases. While many political leaders affirmed the right of protesters to express themselves, they urged the demonstrators to wear face masks and maintain social distancing, both to protect themselves and to prevent further community spread of the virus. Some infectious disease experts were reassured by the fact that the protests were held outdoors, saying the open air settings could mitigate the risk of transmission.

    • How do we start exercising again without hurting ourselves after months of lockdown?

      Exercise researchers and physicians have some blunt advice for those of us aiming to return to regular exercise now: Start slowly and then rev up your workouts, also slowly. American adults tended to be about 12 percent less active after the stay-at-home mandates began in March than they were in January. But there are steps you can take to ease your way back into regular exercise safely. First, “start at no more than 50 percent of the exercise you were doing before Covid,” says Dr. Monica Rho, the chief of musculoskeletal medicine at the Shirley Ryan AbilityLab in Chicago. Thread in some preparatory squats, too, she advises. “When you haven’t been exercising, you lose muscle mass.” Expect some muscle twinges after these preliminary, post-lockdown sessions, especially a day or two later. But sudden or increasing pain during exercise is a clarion call to stop and return home.

    • My state is reopening. Is it safe to go out?

      States are reopening bit by bit. This means that more public spaces are available for use and more and more businesses are being allowed to open again. The federal government is largely leaving the decision up to states, and some state leaders are leaving the decision up to local authorities. Even if you aren’t being told to stay at home, it’s still a good idea to limit trips outside and your interaction with other people.

    • What’s the risk of catching coronavirus from a surface?

      Touching contaminated objects and then infecting ourselves with the germs is not typically how the virus spreads. But it can happen. A number of studies of flu, rhinovirus, coronavirus and other microbes have shown that respiratory illnesses, including the new coronavirus, can spread by touching contaminated surfaces, particularly in places like day care centers, offices and hospitals. But a long chain of events has to happen for the disease to spread that way. The best way to protect yourself from coronavirus — whether it’s surface transmission or close human contact — is still social distancing, washing your hands, not touching your face and wearing masks.

    • What are the symptoms of coronavirus?

      Common symptoms include fever, a dry cough, fatigue and difficulty breathing or shortness of breath. Some of these symptoms overlap with those of the flu, making detection difficult, but runny noses and stuffy sinuses are less common. The C.D.C. has also added chills, muscle pain, sore throat, headache and a new loss of the sense of taste or smell as symptoms to look out for. Most people fall ill five to seven days after exposure, but symptoms may appear in as few as two days or as many as 14 days.

    • How can I protect myself while flying?

      If air travel is unavoidable, there are some steps you can take to protect yourself. Most important: Wash your hands often, and stop touching your face. If possible, choose a window seat. A study from Emory University found that during flu season, the safest place to sit on a plane is by a window, as people sitting in window seats had less contact with potentially sick people. Disinfect hard surfaces. When you get to your seat and your hands are clean, use disinfecting wipes to clean the hard surfaces at your seat like the head and arm rest, the seatbelt buckle, the remote, screen, seat back pocket and the tray table. If the seat is hard and nonporous or leather or pleather, you can wipe that down, too. (Using wipes on upholstered seats could lead to a wet seat and spreading of germs rather than killing them.)

    • Should I wear a mask?

      The C.D.C. has recommended that all Americans wear cloth masks if they go out in public. This is a shift in federal guidance reflecting new concerns that the coronavirus is being spread by infected people who have no symptoms. Until now, the C.D.C., like the W.H.O., has advised that ordinary people don’t need to wear masks unless they are sick and coughing. Part of the reason was to preserve medical-grade masks for health care workers who desperately need them at a time when they are in continuously short supply. Masks don’t replace hand washing and social distancing.

    • What should I do if I feel sick?

      If you’ve been exposed to the coronavirus or think you have, and have a fever or symptoms like a cough or difficulty breathing, call a doctor. They should give you advice on whether you should be tested, how to get tested, and how to seek medical treatment without potentially infecting or exposing others.

Stocks of smaller companies also plummeted on Thursday, with the Russell 2000 index of such companies dropping 7.6 percent. The prospect of another economic slump also hit petroleum prices, with benchmark American crude oil slipping more than 8 percent. The energy sector was the worst-performing part of the stock market, falling 9.5 percent. The natural gas pipeline company Oneok and the oil and gas producer Occidental were both down about 16 percent.

Some of the companies had recently pulled in opportunistic traders hoping to ride the wave, analysts said. But on Thursday, the high-volume sell-off in their shares suggested those speculators were dumping their holdings.

The market may well rebound, as markets tend to do. But analysts see bumps ahead, especially around the passing of another stimulus bill. With the presidential election just months away, partisan dynamics make it less likely that Congress will be able to approve another large rescue package.

Some on Wall Street even think that the performance of the stock market would have to be much worse than Thursday’s drop — and the economic conditions far more dire — for policymakers like President Trump, Speaker Nancy Pelosi and Senator Mitch McConnell to band together and act.

“Thinking Pelosi and McConnell and Trump are all going to come together, it will only happen if the news is really, really bad,” said Michael Purves, the chief executive officer at Tallbacken Capital Advisors, a financial market research firm.

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