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Wall Street slips as virus outbreaks dim rebound hopes Stocks slink back as virus outbreaks dim recovery hopes
(32 minutes later)
U.S. stocks are falling in early trading Tuesday as expanding coronavirus outbreaks dim hopes for a speedy recovery. The S&P 500 and Dow Jones Industrial Average followed benchmarks in France, Germany and Britain lower after the European Union slashed its forecasts for economic growth in 2020. Investors worry that recovery from the global recession and the lockdowns on businesses will take longer than expected. Stocks also fell in Tokyo, Seoul and Hong Kong, while the Shanghai Composite index advanced. Precious metals and crude oil prices also fell, as did the 10-year Treasury yield. NEW YORK — Most U.S. stocks are slipping in early trading on Tuesday, giving back some of their big gains from the past couple weeks.
THIS IS A BREAKING NEWS UPDATE. AP’s earlier story is below: The S&P 500 was 0.3% lower, as of 9:50 a.m. Eastern time. Stocks were down even more 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.
World stock markets were mostly lower Tuesday as spreading coronavirus outbreaks dimmed hopes for a global recovery, despite an overnight rally in tech shares that pushed the Nasdaq to another record high. The Dow Jones Industrial Average was down 219 points, or 0.8%, at 26,067, and stocks in Asia also fell following the big rally that swept markets worldwide on Monday.
The EU executive meanwhile lowered its forecasts for economic growth this year and predicted a slower rebound in 2021, highlighting how the recovery from the global recession and the lockdowns on business will take longer than expected. Big technology stocks were an outlier, though, with Apple, Microsoft, Google’s parent company and other titans holding steady or inching higher. They helped lift the Nasdaq composite up 0.1%, extending its record set a day earlier.
U.S. shares were set to drift lower, with Dow futures falling 0.9% and S&P 500 futures sliding 0.8%. In Europe, France’s CAC 40 fell 0.9% to 5,035, while Germany’s DAX slipped 1.1% to 12,598. Britain’s FTSE 100 dropped 1.2% to 6,210. 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.
Government stimulus and hopes for an economic turnaround have kept investor sentiment upbeat recently, Prakash Sakpal and Nicholas Mapa, senior economists at ING, said in a report after the Nasdaq hit a record. But pandemic uncertainties are lingering, and the situation is fragile. Pulling 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.
“Investors continue to look past the sustained pickup in new infections in the southern part of the U.S. as well as other parts of the world like Israel, but a sustained influx of downbeat reports could change sentiment,” their report said. 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 decade for the index since 1998.
In Asian trading, Japan’s benchmark Nikkei 225 dropped 0.4% to finish at 22,614.69 and South Korea’s Kospi gave up 1.1% to 2,164.17. Australia’s S&P/ASX 200 was little changed, edging less than 0.1% lower to 6,012.90. Hong Kong’s Hang Seng shed 1.5% to 25,946.86, while the Shanghai Composite gained 0.4% to 3,345.34. 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 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.
Market sentiment took a hit after the executive body of the 27-nation EU said the bloc’s economy is forecast to contract 8.3% this year, before growing 5.8% in 2021. In the previous forecasts released in May, GDP was forecast to contract about 7.5% this year and to bounce back 6% next year. Such worries spilled through markets Tuesday after the European Commission unveiled its more dour economic forecasts for 2020 and 2021.
Industrial production in Germany rebounded in May, but less than expected and remains far below levels from before the pandemic caused factories to close. “The road to recovery is still paved with uncertainty,” EU Economy Commissioner Paolo Gentiloni told reporters in Brussels. “This is mostly linked to the epidemiological uncertainty.”
While investors have focused on hopes for a robust bounce back in the global economy, the worry is that pandemic will continue worsening, with hotspots stretching across the U.S. South and West. Cities in major economies like Australia and Britain have seen pockets of new contagions, requiring new lockdown measures. That trend is likely to keep shoppers and businesses from spending. 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.
The worst-case scenario for markets is that governments resume more widespread lockdowns implemented during the spring and choke off the budding economic recovery. Either way, many economists expect it will take years for the global economy to return to the level of output it was at before the pandemic. 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.
Benchmark U.S. crude oil lost 42 cents to $40.21 a barrel. It fell 2 cents to $40.63 a barrel Monday. Brent crude oil for September delivery fell 35 cents to $42.75 a barrel. Germany’s DAX lost 1.2%, while France’s CAC 40 fell 1.1%. The FTSE 100 in London dropped 1.6%.
The dollar rose to 107.71 Japanese yen from 107.37 yen. The euro inched down to $1.1291 from $1.1309. In Asia, Japan’s Nikei 225 fell 0.4%, the Kospi in South Korea dropped 1.1% and the Hang Seng in Hong Kong slipped 1.4%.
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 lost 6.8%, American Airlines slipped 5.7% and mall-owner Simon Property Group dropped 3.8%.
Energy stocks fell even more than the price of oil, which has swung sharply with expectations for the economy’s strength. Devon Energy lost 4.1%, and Occidental Petroleum slipped 3.7%.
Benchmark U.S. crude slipped 0.4% to $40.47 per barrel. Brent crude, the international standard, lost 0.4% to $42.93 per barrel.
On the winning end were the big tech-oriented companies that have been dominating the market for years. Investors have continued to pile into companies they believe are able to grow almost regardless of the economy and whether people are locked in quarantines. Microsoft rose 0.6%, Apple gained 0.5% and Google’s parent company added 0.8%.
The yield on the 10-year Treasury slipped to 0.67% from 0.68% late Monday. It tends to move with investors’ expectations for the economy and inflation.
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AP Business Writers Yuri Kageyama and Samuel Petrequin contributed.
Copyright 2020 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed without permission.Copyright 2020 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed without permission.