“#Stocks tumble as coronavirus recovery rally takes a hit”
June 9, 2020 | 1:18pm | Updated June 9, 2020 | 2:04pm
The Dow Jones industrial average dropped as much as 421.38, or 1.5 percent, to 27,151.06 by midday, as doubts resurfaced about the US economy’s ability to recover from the coronavirus crisis. The blue-chip index finished Monday just 6.7 percent below the all-time high reached in February.
The S&P 500 slid as much as 1.2 percent after a Monday rally that briefly erased all of its losses for 2020. But the tech-heavy Nasdaq rose as much as 0.7 percent to 10,002.50, crossing 10,000 for the first time ever and posting a new intraday record.
The recent rally is “completely over the top in that it’s not discounting a slow economic recovery and sharp drop in corporate earnings,” said Chris Rupkey, chief financial economist at MUFG Union Bank. “At some point the stock market rally’s going to run into a wall in that if companies don’t make money, share prices can’t go up forever.”
The tumble came a day after the National Bureau of Economic Research declared that the US entered a recession in February as the coronavirus pandemic upended the global economy.
Encouraging economic data — such as last week’s surprisingly positive jobs report — have led investors to bet on a healthy rebound from the worst downturn since the Great Depression.
“You really had a lot of investors get caught on the sidelines, and with all the cash that has been piling up over the last couple of months I think it really fueled a sharper-than-expected rebound in then market,” said Eric Marshall, director of research at Hodges Capital Management.
But federal data released Tuesday showed hiring hitting an all-time low in April amid surging layoffs, indicating there’s a long way to go before the labor market recovers from the pandemic.
A recent uptick in coronavirus infections in states such as Texas also likely tempered Wall Street’s enthusiasm, according to David Trainer, CEO of investment research firm New Constructs.
“Markets are pretty topped out, so going forward it’s going to be choppy up and down and bad news on the margin is going to be impactful,” Trainer said.
Wall Street will also be watching Wednesday’s Federal Reserve meeting to gauge chairman Jerome Powell’s attitude toward maintaining the central bank’s efforts to backstop the economy, according Anthony Denier, CEO of the trading platform Webull. Powell has encouraged markets by saying the Fed will use its full range of policy tools to stave off economic devastation.
“If he continues the rhetoric that he has been saying of, ‘The Fed will be there,’ then I don’t see this bubble bursting any time soon,” Denier said.
Pandemic-battered companies that got a boost Monday took a hit Tuesday, with major airlines Delta, United and American each down more than 8 percent as of 1:56 p.m. Bankrupt car-rental firm Hertz plunged as much as 28.5 percent to $3.40 after its share price more than doubled to $5.53 Monday.
But Nasdaq-listed tech giants outperformed, with Apple recently up 3.5 percent, Amazon up 3.7 percent and Google parent Alphabet up 0.8 percent.
With Post wires
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