Dow on pace for third straight drop as lack of fiscal stimulus, renewed lockdowns weigh on investors

U.S. stocks were lower again Thursday afternoon for the third straight day, as rising coronavirus cases, especially in Europe, resulted in new restrictions on businesses and travel.

Investors were also disappointed by a rise in weekly U.S. jobless claims and the lack of progress in Congress on another fiscal stimulus bill which is now unlikely until after the November elections.

The Dow Jones Industrial Average DJIA, -0.10% was trading 42 points, or 0.2%, lower at 28,472; the S&P 500 index SPX, -0.33% was down 15 points to reach around 3,474, a drop of 0.4%, while the Nasdaq Composite Index COMP, -0.80% slumped by 0.9%, a fall of 105 points to about 11,664.

On Wednesday, the Dow slumped 165.81 points, 0.6%, to finish at 28,514.00, while the S&P 500 index fell 23.26 points, 0.7%, to end at 3,488.67. The Nasdaq dropped 95.17 points, or 0.8%, to close at 11,768.73. All three benchmarks traded in positive territory earlier in the session.

Meanwhile, the Dow Jones Transport Average DJT, +0.56% rose 104.27 points, or 0.9%, to a record high of 11,887.49, its fifth record close for October, according to Dow Jones Market Data.

Read: Dow transports rallies toward a record, to buck the broader stock market’s selloff

What’s driving the market?

Concern about the impact of rising numbers of COVID-19 cases and fading hopes for any further fiscal stimulus from Congress before the November U.S. elections are weighing on investor sentiment, while third-quarter earnings reporting rolls on with mixed results.

“It was only a matter of time before investors are no longer able to ignore the sharp increase in new COVID-19 cases and new restrictions being introduced throughout Europe,” said Milan Cutkovic, a market analyst at Axi, in a note.

France joined the U.K. in imposing fresh social restrictions, including declaring a state of emergency and a nightly curfew in a number of metropolitan regions across the country. The U.K. has been tightening social restrictions also to help limit the spread of the outbreak.

Read: Coronavirus update: U.S. death toll tops 217,000; the magazine Nature becomes the latest science journal to blast Trump’s pandemic management

Investors have also been discouraged by a lack of progress in negotiations between House Speaker Nancy Pelosi and U.S. Treasury Secretary Steven Mnuchin on an additional round of fiscal stimulus to help stem economic hardship from the COVID-19 pandemic.

While Mnuchin and Pelosi talks continue, Senate Majority Leader Mitch McConnell reiterated Thursday he won’t put a large fiscal stimulus package on the Senate floor, leaving a wide and public gap between between himself and President Donald Trump on the issue.

See: Gap between White House and Senate grows as McConnell again rejects big fiscal stimulus

Meanwhile, investors have been poring over corporate earnings, with the last of the major Wall Street banks, Morgan Stanley MS, +1.20% posting a third-quarter profit of $2.7 billion, or $1.66 per share, besting consensus estimates for $1.28 by Refinitiv and producing revenue of $11.7 billion that were 16% better than a year ago. Morgan Stanley’s report comes after Bank of America BAC, +1.50%, JPMorgan Chase & Co. JPM, +1.09%, Citigroup C, +0.60% and Wells Fargo & Co. WFC, -1.95%, all reported mixed results.

Dow component Walgreens Boots Alliance WBA, +3.88%, meanwhile, also reporting better-than-expected results.

The Nasdaq index was also depressed by a Goldman Sachs note cutting its recommendation on technology stocks to neutral, saying likely policy shifts and slowing economic growth may temporarily cap the outperformance of the sector.

In economic reports, U.S. weekly jobless claims data, a closely watched high-frequency date point in the pandemic era, climbed 53,000 to 898,000, representing the highest level since Aug. 22.

“The labor market did a good job recouping more than half of the job losses from March. But what the continued elevation of jobless claims and other labor market data tells us is that recouping that second half is going to be a lot harder,” said Michael Arone, chief investment strategist at State Street Global Advisors, in an interview.

In other data, the Philadelphia Federal Reserve’s factory index jumped to 32.3 in October well above consensus forecast of 13.5. The index hit 15 in September. Separately, the Empire State manufacturing index fell to 10.5 in October from 17 in prior month.

Later in the day, Minneapolis Federal Reserve President Neel Kaskari, will speak about the U.S. economic outlook to the New York University Stern School at 5 p.m.

Finally, both President Donald Trump and Joe Biden, Democratic contender for the presidency in November’s elections, will both hold separate “town hall” sessions on competing television channels at 8 p.m. Eastern Thursday night, after the scheduled second debate was canceled.

Which stocks are in focus?

  • Shares of Walgreens Boots Alliance Inc. jumped 3.2% Thursday, after the drugstore services company reported a fiscal fourth-quarter profit that fell less than expected, while revenue rose above forecasts.
  • YogaWorks Inc. YOGA, -12.13% the chain of studios and international yoga schools, has filed for chapter 11. Shares tumbled nearly 12%.
  • Shares of Roku Inc. fell 2.9% Thursday, to extend their pullback from a record close earlier this week, after KeyBanc Capital analyst Justin Patterson backed away from his longtime bullish stance, citing concerns over valuation.
  • Tiffany & Co. TIF, +1.97%  offered guidance for the fourth quarter on Thursday, saying it expects a mid-single digit percentage decline in sales compared with the year-earlier period and a mid-single digit percentage increase in operating earnings. The stock was up 1.8%.
  • Shares of Tesla Inc. TSLA, -3.18%  dropped 3.7% Thursday, putting them on track to snap a 6-day win streak, even as Baird analyst Ben Kallo boosted his price target by 25%.
  • Vertex Pharmaceuticals Inc. VRTX, -19.27% stock lost nearly 20% Thursday after the biotech company said it would stop developing a drug to treat an inherited protein deficiency that can cause lung and liver disease.
  • Fastly Inc. shares FSLY, -26.30% plummeted 27% after the software company said that its largest customer, TikTok parent Bytedance Inc., didn’t use its product as much as expected amid a threatened ban in the U.S.
  • Wells Fargo & Co. fired more than 100 employees for allegedly defrauding a federal pandemic-relief program. Shares declined 1.9% Thursday.

How are other assets performing?

The yield on the 10-year Treasury TMUBMUSD10Y, 0.727% note was up 0.5 basis point to 0.727%. Yields and bond prices move in opposite directions.

In global equities, Hong Kong’s Hang Seng Index HSI, -2.06%  closed 2.1% lower and Japan’s Nikkei 225  NIK, -0.50% fell 0.5%.

In Europe, the pan-European Stoxx 600 Europe SXXP, -2.08% fell 2.1% and London’s FTSE 100 UKX, -1.72%  slumped 1.7%.

Gold prices GOLD, -1.44% retreated 0.5% to trade at $1,899.10. an ounce. Oil futures tanked, pushing the U.S. benchmark CL.1, -0.78% more than 3.3% lower in early Thursday action.

The greenback was 0.4% higher, based on the ICE U.S. Dollar Index DXY, +0.50%.

Originally published on MarketWatch

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