The S&P 500 has dropped two per cent as investors took profits following a warning from the top US infectious disease expert that premature moves to reopen the nation’s economy could lead to novel coronavirus outbreaks and set back economic recovery.
The index suffered its first decline in four sessions as investors weighed the potential for a second wave of virus infections against hopes that easing of stay-at-home restrictions could ignite a recovery in the US economy, which has been severely damaged by the virus.
National Institute of Allergy and Infectious Diseases director Anthony Fauci told Congress that the virus, which has already killed 80,000 Americans, was not yet under control and there would not likely be a treatment or vaccine in place by late August or early September.
“There is a real risk that you will trigger an outbreak that you may not be able to control and … could even set you back on the road to try to get economic recovery,” Fauci said on Tuesday.
And reports of new clusters of coronavirus infections in countries such as China, South Korea and Germany where lockdowns had been lifted appear to have added to worries.
Optimism about an economic recovery and massive stimulus measures have helped the S&P 500 climb about 34 per cent to Tuesday’s intraday high from the March 23 low of the pandemic-driven selloff.
Phil Blancato, chief executive of Ladenburg Thalmann Asset Management in New York, said scientists and the Federal Reserve had given opposing messages on reopening.
“It goes back to science versus the Federal Reserve. The Federal Reserve has been supportive of the market … What’s going to win here?” he said.
“From the science viewpoint if we open too quickly, we’ll just go back to where we were. But if we don’t open at all, we have this economic malaise.”
With concerns about potential for declines, participants such as Dennis Dick, proprietary trader at Bright Trading LLC in Las Vegas, were anxious to lock in their profits.
“People are very nervous about how the reopening is going to go,” he said.
Wall Street’s three major averages closed around their session lows.
The Dow Jones Industrial Average fell 457.21 points, or 1.89 per cent, to 23,764.78, the S&P 500 lost 60.2 points, or 2.05 per cent, to 2,870.12 and the Nasdaq Composite dropped 189.79 points, or 2.06 per cent, to 9,002.55.
The Cboe Volatility Index, known as Wall Street’s fear gauge, ended 5.47 points higher at 33.04. It was the biggest one-day point gain for the VIX in more than three weeks.
Among the S&P’s 11 major sectors, real estate was the biggest percentage decliner with a 4.3 per cent drop.
Industrials and financials were the next biggest laggards with respective declines of 2.8 per cent and 2.7 per cent.
Tuesday’s data showed that US consumer prices dropped by the most since the Great Recession in April, due to a plunge in demand for petrol and services including airline travel as people stayed home during the coronavirus crisis.
But prices for food consumed at home rose 2.6 per cent in the largest advance since February 1974, leaving some investors anxious about the prospect of stagflation, if consumers cannot keep up with price increases for essentials.
“What happens if the cost of essential goods get more expensive and you’re not earning enough money. That could become really problematic,” Ladenburg Thalmann’s Blancato said.
Helping to drag down the financial sector was a big decline in BlackRock, after its top shareholder PNC Financial Services Group said it planned to sell its entire 22 per cent stake in the world’s largest asset manager.
Online food delivery company GrubHub surged 29 per cent after a person familiar with the matter said Uber Technologies was in advanced talks to buy the company in an all-stock deal.
Declining issues outnumbered advancing ones on the NYSE by a 2.91-to-1 ratio; on Nasdaq, a 2.65-to-1 ratio favoured decliners.
The S&P 500 posted nine new 52-week highs and two new lows; the Nasdaq Composite recorded 91 new highs and 42 new lows.
On US exchanges 11.28 billion shares changed hands compared with the 11.36 billion average for the last 20 sessions.