RCL Royal Caribbean Group

By Anna Hirtenstein and Paul Vigna 

The Dow Jones Industrial Average dropped 650 points Monday as coronavirus cases surged, adding to worries about the economic outlook after Congress and the White House failed to agree on a much-anticipated fiscal stimulus deal.

Major indexes opened lower, and declines accelerated into the afternoon. In the Dow -- which suffered its steepest one-day point and percentage drop since Sept. 3 -- 29 of 30 stocks fell on the day. All 11 sectors of the S&P 500 also suffered losses.

Among the biggest decliners were the travel and leisure stocks that have come under the most pressure this year during the pandemic. Royal Caribbean Group dropped 9.6%, United Airlines Holdings fell 7% and Marriott International declined 5.6%.

"The ability to fight the virus further right now is very much in question, and it's a political question," said Steven Wieting, chief strategist at Citi Private Bank. It could be months before anything gets done in Washington, and that's made investors tentative, he said.

The Dow fell 650.19 points, or 2.3%, to 27685.38, paring a early-afternoon loss of as much as 965 points. Apple was the only stock in the index to finish the day in the green, rising a penny.

The S&P 500 lost 64.42 points, or 1.9%, to 3400.97. The Nasdaq Composite dropped 189.34 points, or 1.6%, to 11358.94. All three indexes are down more than 5% from their records earlier this year.

The average number of new coronavirus cases reported daily over the past week reached an all-time high of 68,767 on Monday. Scientists had been expecting cooler weather to lead to a second wave of the disease, but the swell is coming earlier than many had anticipated. That is prompting fresh concerns about tighter lockdown restrictions and the effect on the economy.

"It's a worrying picture for sure," said David Stubbs, head of investment strategy at J.P. Morgan Private Bank. "But we always knew this recovery would be stop-start: We won't be truly moving into the main part of a new cycle until the health-care issue itself is dealt with."

Meanwhile, the chances of a stimulus package coming together before the election next Tuesday are looking increasingly slim, and the possibility, if President Trump is defeated, of no additional relief coming before late January is rising. Democrats and White House officials have blamed each other for the lack of progress.

A selloff here isn't surprising, said Esty Dwek, head of global market strategy at Natixis Investment Managers. Last week the market was optimistic about stimulus aid, and this week those hopes have been leveled somewhat.

Moreover, some polls suggest key Senate races are tightening, Ms. Dwek said, cutting into expectations of a takeover that would allow Democrats to pass an aggressive stimulus package after the election. "The blue wave might not be as much of a given," she said.

Historically, the week before a presidential election is good for stocks. Since 1928, the market has usually risen in the last full week before the contest. The S&P 500 has been up in 70% of those weeks, according to Dow Jones Market Data. The gains are even more frequent if measured from the Tuesday before the election to Election Day. The index has risen in 91% of those instances.

Investors are also still tuned in to third-quarter earnings season. A heavy calendar this week includes Microsoft, Caterpillar, Apple, Amazon.com, 3M, ConocoPhillips and Alphabet.

The critical element isn't necessarily the results themselves, said Fawad Razaqzada, an analyst at ThinkMarkets, but the corporate outlooks for the next few quarters. If executives start pointing to weaker earnings growth and a slowing economy, it could cut into the market's momentum, he said. "People are generally optimistic about the future," he said. "This might be a reality check."

Corporate earnings are expected to turn a corner in the current reporting season. Although profits are still expected to fall sharply from a year earlier, analysts project a rebound from the second quarter and a return to growth in 2021.

The beaten-down energy sector was the weakest performer in the S&P 500 Monday, falling 3.5%. The industrials, materials, communications services, financials and information technology groups also fell more than 2%. Utilities were a relative bright spot, dropping less than 0.1%.

Elsewhere, the pan-continental Stoxx Europe 600 retreated 1.8%, led by a decline in German stocks. Coronavirus cases are accelerating in Europe. France reported more than 52,000 new infections Sunday, a daily high. Italy is trying to rein in the spread with new rules, such as the mandatory closure of restaurants and bars at 6 p.m. Spain declared a state of emergency, as it did in March.

In Asia, most major equity benchmarks closed lower. China's Shanghai Composite Index fell 0.8%. Markets in Hong Kong were closed for a public holiday.

In other markets, U.S. crude oil futures fell 3.2% to $38.56 a barrel. A cease-fire in Libya has led analysts to project the country's output will reach 1 million barrels a day in the next four weeks, up from about half a million a day, according to Bjarne Schieldrop, chief commodities analyst at SEB. The rise in coronavirus infections is also muting prospects for the economic recovery and damping demand, he said.

In bond markets, the yield on the benchmark 10-year U.S. Treasury note declined to 0.801%, from 0.840% Friday.

The WSJ Dollar Index, which measures the greenback against a basket of currencies, added 0.3%.

Write to Anna Hirtenstein at anna.hirtenstein@wsj.com and Paul Vigna at paul.vigna@wsj.com

(END) Dow Jones Newswires

October 26, 2020 17:24 ET (21:24 GMT)

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