The stock market tanked on Thursday amid fears of a possible second wave of coronavirus infections as states that have started lifting lockdowns begin to see a record number of new cases.
The Dow Jones Industrial Average fell 6.9%, nearly 1,900 points, in its worst single-day drop since the coronavirus sell-off in March. The S&P 500, which fell 5.9%, also had its worst day since March.
Stocks plunged on rising concerns about a second wave of coronavirus infections: Many states that loosened lockdown restrictions saw a spike in new cases.
Texas and Florida, for example, were among some of the first states to reopen, and they are now reporting record numbers of hospitalizations. A total of 21 states reported an increase in new cases last week, according to a Reuters analysis.
Thursday’s sell-off follows the Federal Reserve’s grim update on the economy: A day earlier, the Central Bank forecasted a long recovery, with unemployment set to remain high for years and interest rates staying near zero until at least 2022.
“Fed chair Powell yesterday really reminded investors that there’s a huge, huge gap between the economic reality and the market reality,” Tom Essaye, founder of the Sevens Report, told CNBC. “Just that reminder combined with a lot of the second wave headlines prompted an opportunity to take profits… stocks can’t go up forever.”
Expectations for a quick economic recovery are dwindling: Investors are now dumping stocks that would benefit from a reopening—including airlines, retailers and cruise operators—after they led the market rally over the past month.
Wall Street traders are instead rotating back into stay-at-home stocks, such as Netflix and Zoom, as well as big tech companies like Apple, Amazon, Microsoft and Google-parent Alphabet.
The stock market’s fear gauge, the CBOE Volatility Index, skyrocketed over 47% on Thursday, breaking above the 40 threshold for the first time in over a month.
“The REAL reasons stocks are down doesn’t have much to do with fundamentals – the tape had become GROSSLY overbought (with valuations hitting multi-decade, unsustainable highs),” according to Adam Crisafulli, founder of Vital Knowledge. “A lot of reluctant buyers were sucked in off the sidelines these last few weeks, creating a giant downside air pocket that’s now being filled.”
BIG NUMBER: MORE THAN 44 MILLION.
That’s how many people have filed for unemployment over the last three months, as the coronavirus pandemic forced businesses to shut down on an unprecedented scale. Jobless claims fell for the tenth week in a row on Thursday, with 1.5 million more Americans filing for unemployment during the week ending June 6. While that number continues to decline, millions are still unemployed and the job market’s recovery is expected to take years.
“We can’t shut down the economy again,” Treasury Secretary Steven Mnuchin told CNBC on Thursday morning. “I think we’ve learned that if you shut down the economy, you’re going to create more damage,” he warned.
Both the S&P 500 and Dow are still up more than 40% from their coronavirus low point on March 23. Federal Reserve chairman Jerome Powell reiterated at his press conference on Wednesday that while “there is great uncertainty about the future,” the Central Bank is strongly committed to doing “whatever we can, for as long as it takes” to help support the economy. Before this week, stocks had continued to rally on optimism about reopening the economy and a faster-than-expected recovery from the coronavirus recession: The S&P 500 on Monday turned positive for 2020, fully recouping its losses from the coronavirus selloff earlier this year. But the market is now taking a hit amid rising concerns over a second wave of coronavirus cases. With investors rotating out of stocks that would benefit from an economic reopening, big-tech shares have made a comeback: That helped boost the Nasdaq to a new record high on Wednesday, when it closed above 10,000 for the first time ever.
I am a New York—based reporter for Forbes covering breaking news, with a focus on financial topics. Previously, I wrote about investing for Money Magazine and was an intern at Forbes in 2015 and 2016. I graduated from the University of St Andrews in 2018, majoring in International Relations and Modern History. Follow me on Twitter @skleb1234 or email me at sklebnikov@