Stocks Close Sharply Lower; Dow Drops More Than 500 Points

09/21/2020 | 05:20pm

By Anna Isaac and Ben Eisen

The Dow Jones Industrial Average dropped about 500 points, falling in tandem with oil and gold prices and sparking worry among some investors of further turbulence ahead.

Monday's losses were broad. Economically sensitive sectors like materials and industrials led the declines.

Meanwhile, U.S. oil prices tumbled 5%, and gold, a traditional haven, fell 2.6%. The simultaneous declines across various asset classes spurred anxiety for some investors and traders who fear a repeat of March's market turmoil.

The Dow dropped 1.9%, while the S&P 500 fell 1.2%. The technology-laden Nasdaq Composite lost 0.1% All three indexes recovered somewhat from their lows earlier in the day.

The declines extend the stock market's retreat into a fourth consecutive week, snapping a summer rally that had propelled the major indexes near record levels.

Sentiment has soured in September, with investors saying they are growing uneasy about the outlook for the U.S. economy as the prospect of an additional fiscal-stimulus package looks increasingly remote ahead of a heated U.S. election campaign season.

"The odds of us getting a stimulus package before the election are probably as close to zero as we are going to get," said Jim Tierney, chief investment officer for concentrated U.S. growth at AllianceBernstein. "The stocks that needed stimulus are getting hit hard today."

Shares of airlines, retailers and energy companies -- which have been battered this year during the pandemic -- were among the market's biggest losers. Delta Air Lines dropped 8.2%, while Kohl's fell 7.2% and Halliburton declined 9.6%.

Bank stocks, whose profits are particularly sensitive to the economy, were also down. Wells Fargo dropped 5.1%, while JPMorgan Chase and Bank of America fell more than 4%.

A closely watched barometer of expected turbulence in U.S. stocks, the Cboe Volatility Index, jumped Monday to its highest level in weeks. Some investors said they expect the volatility to continue.

"I don't think we are going to see the lows that we saw in March. I do believe that overall the market has gotten a little ahead of itself," said Diane Jaffee, a senior portfolio manager for relative value strategies at TCW.

The S&P 500 was off more than 7% from its Sept. 2 record through Friday's close, while the Nasdaq Composite was down more than 10%. The Dow has yet to reclaim its pre-pandemic high and was about 6% below its February record.

Some investors sought safety in government bonds, pulling the yield on the benchmark 10-year Treasury note down to 0.666% from 0.694% Friday. Bond prices and yields move in opposite directions.

Investors said they were also unnerved by continuing tensions between the U.S. and China and the threat of renewed lockdowns in many places because of higher coronavirus infections.

Over the weekend, China's Ministry of Commerce laid out penalties for companies and individuals it deems to be "unreliable entities," including potential restrictions on staffing and investment in China, curbs on imports and exports, and fines.

The list is aimed at identifying foreign entities and individuals that could harm Chinese interests. No names have thus far been disclosed. The development is likely to add another stress point to the already strained relations between the U.S. and China, as it signals Beijing may step up retaliatory measures, investors said.

"There's the broader macro risk that this might be China starting to become more combative in its use of sanctions," said Edward Park, deputy chief investment officer at Brooks Macdonald. "That wasn't really on the markets' radar."

Elsewhere, shares of Oracle rose 1.3% after President Trump said he has agreed in concept to a deal under which Chinese-owned video-sharing app TikTok will partner with Oracle and Walmart to become a U.S.-based company. The negotiations have stirred debate over national security and the future of the internet. The Commerce Department said it would delay a ban on U.S. downloads and updates for the TikTok app that was set to take effect at 11:59 p.m. Sunday.

Shares of Illumina dropped 7%. The maker of machines that sequence genes will pay $7.1 billion in cash and stock for a developer of a long-sought blood test that promises to detect canc er early, The Wall Street Journal reported.

Nikola's stock plummeted 18% as founder and Executive Chairman Trevor Milton will step down from the electric-truck startup amid allegations from a short seller that he and the company had made false statements to investors.

Overseas, the pan-continental Stoxx Europe 600 fell 3.2%. Coronavirus cases have been rising across major European economies, leading to speculation that governments will be forced to implement new lockdowns that will curtail business and social activity across the region.

"The worry is definitely that we're going to see restrictions on economies and that's going to have a big negative impact going forward," said Altaf Kassam, head of investment strategy for State Street Global Advisors in Europe. "There's the noise from politicians across Europe on the threat of further lockdown, that we've reached a tipping point on the rate of infections."

In Asia, most major stock benchmarks declined. Hong Kong's Hang Seng Index retreated 2.1%, while China's Shanghai Composite ticked down 0.6%.

Analysts said the drop in oil prices was triggered by signals that Libya could renew its supply of oil to the global market at a time when demand for oil has dropped. Gold, meanwhile, pulled back after a recent run higher.

Write to Anna Isaac at anna.isaac@wsj.com and Ben Eisen at ben.eisen@wsj.com

 

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