After a sustained period of gains that saw major indices recover a large part of their March losses, with the Nasdaq even going one better to set a new record high early this week, yesterday saw a bear mood return to markets. The tech-centric index, which has weathered the coronavirus crisis extraordinarily well, suffered a heavy 5.25% loss yesterday.
That was mirrored elsewhere, with the broad-based Dow Jones industrial average suffering its worst day since the mid-March crash, slumping by almost 7%. In the UK, the FTSE 100 was down by 4%. That marked the third straight day of losses for the London Stock Exchange’s benchmark index – its worst run since it also hit a bottom in March. Major European markets have also suffered a new sell-off.
Analysts and market observers have always warned that the extent and pace of the stock market recovery from March’s serious sell-off appeared too good to be true and that further volatility was likely. But those warnings had started to fade into the background, especially over last week when positive job figures from the USA suggested a ‘V-shaped’ economic recovery might be pulled off.
However, yesterday new data suggested that there is a significant risk of a second wave of the Covid-19 pandemic running through a number of U.S. states as lockdown has lifted.
Mass demonstrations supporting the Black Lives Matter movement and protesting the death of George Floyd, an unarmed black man, at the hands of police officers in Minneapolis, have brought large numbers of people into close contact over the past week. That may have weakened an already precarious rate of new infections as lockdowns were generally eased.
Texas, one of the states quickest off the mark on loosening lockdown restrictions, yesterday recorded more than 2,500 new infections, its largest daily increase since the pandemic began. A spike in new cases in Arizona, California and Florida also caused alarm.
Adding to worries of a second coronavirus wave, US Federal Reserve chairman Jerome Powell also yesterday warned about the country’s economic outlook over coming months.
The new downturn in US markets halts a surprising run that saw the leading indices recover to around 40% up on March lows. Airline and travel and tourism stocks, among those hit hardest in March and April have also seen strong gains over the past couple of weeks on hopes part of the summer holiday season might be salvaged.
However, they again suffered heavy losses yesterday on the possibility travel restrictions could be tightened again. Retail and leisure were other sectors battered on Thursday.
Oil prices also reflected new doubts over the pace of economic recovery from the pandemic lockdown, with Brent crude down 7.6% last night to $38.55 a barrel and WTI, the U.S. oil benchmark, down 8.2% to $36.34.
Investors once again moved into bonds as they fled risk-on assets, pushing the yield on 5-year UK gilts back into negative territory. The yields on 10-year UK gilt bonds have also almost halved over the course of this week.
This article is for information purposes only.
Please remember that financial investments may rise or fall and past performance does not guarantee future performance in respect of income or capital growth; you may not get back the amount you invested.
There is no obligation to purchase anything but, if you decide to do so, you are strongly advised to consult a professional adviser before making any investment decisions.