Dow slides more than 700 points as the economic outlook gets drearier

Dow slides more than 700 points as the economic outlook gets drearier

The great reopening of the economy is already stalling as Covid-19 cases are rising across parts of the country. Texas Governor Greg Abbott ordered further restrictions on local businesses on Friday, one day after the reopening was “paused” to contain the surge in new infections.

Stocks sold off sharply to the end of the week. The Dow and the Nasdaq Composite recorded their worst day since June 11, when the market tanked because of similar concerns.

The Dow (INDU) closed 730 points, or 2.8%, lower. Only one Dow stock – Cisco (CSCO) – closed in the green. The Nasdaq Composite (COMP) closed down 2.6%.
The S&P 500 (SPX) – the broadest measure of Wall Street – fell 2.4%. Yet, it has been the worst drop since only Wednesday.

All three indexes recorded a weekly loss.

Banks were among the worst performers following the results of the Federal Reserve’s stress test late Thursday.

Although America’s financial institutions receive a clean bill of health from the central bank, they will be required to further shore up their capital to protect themselves against losses and preserve their ability to lend to the struggling businesses.

Banks also won’t be allowed to buy back shares in the third quarter of the year and shareholder dividends will be capped.

Banks were the best performers in the market on Thursday, following the rollback of key banking regulations.

But economic data again pointed at some areas of concern in America’s long road to recovery on Friday.

The Bureau of Economic Analysis reported consumer spending rebounded in May, but Americans’ income dropped sharply as government payouts declined. That’s bad for the consumer spending-addicted US economy: if people don’t have money to spend, recovering from the pandemic recession will take longer.

Meanwhile, the University of Michigan reported consumer sentiment slipped in the second half of June, in lockstep with a resurgence in Covid-19 cases in parts of the country.

So far, the stock market has proven somewhat resilient against rising new infection rates in states like Texas and Florida. This is partly due to the Fed’s commitment to loosen its monetary policy.

The big post-lockdown rally that sent stocks higher as the economy began to reopen may have priced the central bank stimulus in full, suggested Fawad Razaqzada, market analyst at ThinkMarkets, so a renewed selloff over virus fears could result in a more profound downturn.