Stock Futures Retreat on Political Risks, Rising Infections

By Anna Isaac

U.S. stock futures retreated Wednesday after an acrimonious presidential debate underscored the risks around the election, and investors fretted about a second wave of coronavirus infections hobbling the economic recovery.

Futures tied to the S&P 500 dropped 0.8%, suggesting that the broad market gauge remains on track to end September with its first monthly drop since March. Contracts tied to the Nasdaq-100 fell 1%.

President Trump and Joe Biden on Tuesday night clashed in a rancorous debate. The president sidestepped a question about whether he would urge his supporters to stay calm and not engage in any civil unrest if there was a period after the Nov. 3 election while votes were still being tabulated. Mr. Biden suggested that it may take awhile to count thousands of ballots that can't be opened until Election Day.

Concerns about rising coronavirus infections in recent days and the risk it poses to the economic recovery are also weighing on markets. The share of people who tested positive in New York City climbed over 3.25%, highlighting the risk of a second wave of infections.

The Cboe Volatility Index, a measure of expected swings in the S&P 500, continued to advance on Wednesday.

"Markets seem to be getting more concerned, with VIX futures peaking around the election," said Edward Park, deputy chief investment officer at Brooks Macdonald. "But whoever takes over, and however long it takes to take over, the person will be facing a battle against coronavirus."

Delays to fiscal stimulus on both sides of the Atlantic are also a worry for investors, who fear economies will need fresh support in the absence of a clear timeline for a coronavirus vaccine. While U.S. lawmakers are trying to find common ground on a deal ahead of the election, a German government spokesperson late Tuesday warned of possible delays to the approval process for the EU recovery fund.

"For financial markets, there's a growing understanding that it was a V-shaped rebound, but that doesn't mean it will be a V-shaped economic recovery," said Carsten Brzeski, an economist with ING Bank in Frankfurt. "Any delays in fiscal stimulus will add to that realization."

House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin are making a late push to try to reach agreement on a coronavirus-relief deal before the election, despite skepticism on Capitol Hill that a deal is possible at this stage. The two are expected to talk again Wednesday.

"At the moment markets are very range bound, contained by the risk of coronavirus but against a backdrop of monetary stimulus," Mr. Park said. "A U.S. fiscal stimulus ahead of the election would be a very welcome surprise."

In bond markets, the yield on the benchmark 10-year Treasury ticked up to 0.653%, from 0.644% Tuesday.

The ICE U.S. Dollar Index, which tracks the greenback against a basket of currencies, ticked up 0.1%.

In commodities, Brent crude, the international energy benchmark, fell 0.5% to $41.35 a barrel ahead of weekly data on U.S. crude inventories. Gold fell 0.7% to $1,890.20 a troy ounce.

Overseas, the pan-continental Stoxx Europe 600 edged down 0.3%.

China's Shanghai Composite ended the day down 0.2% in the market's last trading session before a weeklong holiday. Data on Wednesday showed that China's economic recovery gathered more steam in September. A rebound in global demand and the government's supportive measures bolstered factory activity and helped push sentiment in the service sector to its highest level in nearly seven years.

Japan's Nikkei 225 ended the day down 1.5%. Financial stocks led losses amid ongoing uncertainty over the pace of a global economic recovery from the coronavirus pandemic.

Write to Anna Isaac at [e-mail]