Stocks tumble as coronavirus recovery rally takes a hit
US stocks tumbled Tuesday after a six-day rally that had briefly left the S&P 500 index in positive territory for the year.
The Dow Jones industrial average ended the day down 300.14 points, or 1.09 percent, to 27,272.30, as doubts resurfaced about the US economy’s ability to recover from the coronavirus crisis.
The S&P 500 slid 25.21 points, or 0.78 percent, after a Monday rally that briefly erased all of its losses for 2020. But the tech-heavy Nasdaq picked up 29.01 points, or 0.29 percent, to 9,953.75, after having crossed 10,000 during the trading day for the first time ever and posting a new intraday record.
The recent rally is “completely over the top in that it’s not discounting a slow economic recovery and sharp drop in corporate earnings,” said Chris Rupkey, chief financial economist at MUFG Union Bank. “At some point the stock market rally’s going to run into a wall in that if companies don’t make money, share prices can’t go up forever.”
The tumble came a day after the National Bureau of Economic Research declared that the US entered a recession in February as the coronavirus pandemic upended the global economy.
Encouraging economic data — such as last week’s surprisingly positive jobs report — have led investors to bet on a healthy rebound from the worst downturn since the Great Depression.
“You really had a lot of investors get caught on the sidelines, and with all the cash that has been piling up over the last couple of months I think it really fueled a sharper-than-expected rebound in then market,” said Eric Marshall, director of research at Hodges Capital Management.
But federal data released Tuesday showed hiring hitting an all-time low in April amid surging layoffs, indicating there’s a long way to go before the labor market recovers from the pandemic.
A recent uptick in coronavirus infections in states such as Texas also likely tempered Wall Street’s enthusiasm, according to David Trainer, CEO of investment research firm New Constructs.
“Markets are pretty topped out, so going forward it’s going to be choppy up and down and bad news on the margin is going to be impactful,” Trainer said.
Wall Street will also be watching Wednesday’s Federal Reserve meeting to gauge chairman Jerome Powell’s attitude toward maintaining the central bank’s efforts to backstop the economy, according Anthony Denier, CEO of the trading platform Webull. Powell has encouraged markets by saying the Fed will use its full range of policy tools to stave off economic devastation.
“If he continues the rhetoric that he has been saying of, ‘The Fed will be there,’ then I don’t see this bubble bursting any time soon,” Denier said.
Pandemic-battered companies that got a boost Monday took a hit Tuesday, with major airline Delta closing down 7.6 percent and United and American each losing more than 8 percent. Bankrupt car-rental firm Hertz plunged 24 percent, to $4.18, after its share price more than doubled to $5.53 Monday.
But Nasdaq-listed tech giants outperformed, with Apple up 3.2 percent, Amazon up 3 percent and Google parent Alphabet adding $9.55, or less than 1 percent.
With Post wires