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Stocks capped a volatile week with steep losses Friday as coronavirus cases in the U.S. surged to a new daily record, dimming the prospects of a quick economic recovery after some states paused their reopening efforts in the wake of more outbreaks.
Investors are looking ahead to a possible rebound from the deepest global downturn since the 1930s and trying to buy companies that will thrive after the pandemic ends, analysts say. But they warn the market rise might be too fast and too early to be sustained by an uncertain economic outlook.
On Friday, the Dow Jones industrial average shed 730.05 points, or 2.8%, to 25,015.55, erasing all of Thursday’s gains after the blue-chip average jumped 300 points as regulators loosened some financial regulations on banks. The Standard & Poor’s 500 slid 2.4% to 3,009.05.
The Nasdaq, which hit an all-time high earlier this week, fell 2.6% to 9,757.22. For the week, all three major averages shed at least 2%.
Despite the recent bout of volatility, the S&P 500 index is still on pace for its best quarter since 1998.
“The week is ending on a disappointing note, as U.S. virus cases rise and investors fret that lockdowns will have to be reimposed, or worse that they won’t be, and the death toll will grow sharply,” Chris Beauchamp, chief market analyst at IG Group, an online trading provider, said in a note. “The weakness of the past few days doesn’t augur well for a market sorely in need of further catalysts for this over-extended rally.”
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The U.S. reported 39,972 daily cases of the coronavirus Thursday, a new daily record, according to a database maintained by Johns Hopkins University. That eclipsed the mark set during the deadliest stretch in late April.
Deaths and hospitalizations have been rising in parts of the country, especially in the South and West. The resurgence in the virus has already led governors in Texas and Florida to backtrack or at least pause the reopenings of their states.
One day after pausing additional efforts to reopen Texas, Gov. Greg Abbott on Friday announced another round of restrictions, including closing bars and limiting restaurant occupancy. And in Florida, bars on Friday were prohibited from allowing alcohol consumption.
Investors have been encouraged by official moves to lift anti-virus measures and allow businesses to reopen. But some states have reimposed curbs after a resurgence in new reported infections.
U.S. consumer spending rebounded in May as parts of the economy reopened, but income fell 4.2% and is expected to decline further as millions lose their unemployment checks starting in July. Consumer spending, which accounts for more than two-thirds of U.S. economic activity, rose 8.2% last month, the Commerce Department said Friday, after falling a record 12.6% in April.
“Consumer activity is bouncing back strongly as shops reopen and consumers start to return to normal activities,” Angel Talavera, an economist at Oxford Economics, said in a note. “But consumer sentiment remains low as virus fears have not gone away. The key question moving forward will be how countries deal with the inevitable rise in infections while keeping economic activity going.”
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Friday’s losses were driven by a decline in bank shares as investors weighed the Federal Reserve’s move to temporarily suspend shareholder payouts by big banks ahead of a potentially damaging recession.
Financial stocks reversed course and fell Friday after the central bank unveiled its latest “stress tests,” which are designed to gauge the resiliency of the nation’s largest banks. The Fed ordered banks to suspend buybacks of their own stock and to cap dividend payouts in the third quarter.
“While this is not surprising given the level of disruption in the system, it could signal headwinds for the market over the intermediate term,” Mark Hackett, chief of investment research at Nationwide, said in a note.
Banks had rallied a day earlier after the Fed and four regulatory agencies had separately announced they were going to change a rule that has limited banks’ ability to make investments in such areas as hedge funds.
Shares of JPMorgan Chase and Wells Fargo dropped at least 5.5%. Bank of America, Citigroup and Goldman Sachs lost 6.4%, 5.9% and 8.7%, respectively.
Dow component Nike declined 7.6% after the athletic-footwear maker posted an unexpected profit loss in the latest quarter, its first in more than two years after the company’s earnings were pressured by store closures during the lockdown.
Bond yields were mixed. The yield on the 10-year Treasury note slipped to 0.64% from 0.67%, another sign of caution in the market. The yield tends to move with investors’ expectations for the economy and inflation.
Concern that a pullback in the reopening of businesses could hamper demand for energy helped pull down oil prices Friday. Benchmark U.S. crude was down 0.8% to $38.43 a barrel. Brent crude, the price standard for international oils, was down 0.9% to $40.76 a barrel.
In Europe, the FTSE 100 in London rose 0.2% while Frankfurt’s DAX fell 0.7%. The CAC 40 in France dipped 0.2%. In Asia, the Nikkei 225 in Tokyo rose 1.1% while Seoul’s Kospi gained 1.1%. Hong Kong’s Hang Seng lost 0.9%.
Contributing: The Associated Press
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