The Dow Jones industrial average fell 157.51 points, or 0.6 percent, to close at 26.501.60. The blue-chip index shed 6.5 percent since Monday, marking its worst week since March. It also fell 4.6 in October to record its second straight monthly loss. The S&P 500 index tumbled 40.15 points, or 1.2 percent, to settle at 3,269.96. The tech-heavy Nasdaq gave up nearly 274.00 points, or 2.5 percent, to end at 10,911.59.
The blue-chip index moved into correction territory this week, after falling more than 10 percent from its February peak. October is typically the most volatile month for stock traders, although it has rewarded investors more times it has punished them.
The United States reported a record 90,000 new coronavirus infections on Thursday. The resurgence comes in the homestretch of the presidential campaign, amplifying a sense of unpredictability about the future of U.S. politics and the government’s response to the pandemic.
President Trump “would actually like to see a big stimulus package — however his incentive to pass fiscal stimulus goes away if he loses reelection,” said Kristina Hooper, chief global market strategist at Invesco. “So I think chances are slim to none — and slim may be leaving town right now.”
Governments abroad are also facing a resurgence of the virus that has rattled markets. France and Germany are reinstating business and social restrictions as sick patients fill intensive care beds and the rapid spread of infections strains the countries’ health-care systems. The German DAX is down 9.4 percent for the month, France’s CAC dropped 3.9 percent, and the Pan-European Stoxx shed 5.5 percent. Asian markets were more tempered, however, with the Shanghai and the Nikkei wiping gains for the month and finishing virtually unchanged from September.
The mismatch between strong corporate earnings in the past quarter and sinking stock prices reflects a gloomy outlook for the future, analysts say. While profits rose for many companies that have already reported earnings this quarter, investors fear that the worsening pandemic will keep some from building on their gains and crush those that are just getting by.
Even the gargantuan earnings of U.S. tech giants could not stave off the souring investor sentiment. Apple, Facebook, Alphabet and Amazon collectively generated $38 billion in net profit this quarter. But investors appeared to poke holes in any perceived weakness, underscoring the sky-high expectations attached to the relentless gains these companies have racked up throughout the pandemic. Only Alphabet shares climbed after it reported earnings Thursday.
“It’s always about the future earnings and not the current earnings,” said Nick Raich, chief executive of the Earnings Scout, an independent macroeconomic research firm, based in Cleveland. Of the more than 300 S&P companies that have already reported financial results, 83 percent of them beat expectations to an extreme degree, surpassing forecasts by an average of more than 20 percent. But the rates that companies are projecting for future growth are slowing compared to past quarters, Raich said.
“We are facing potential virus fears increasing, plus no stimulus — that equals weakening earnings expectations and lower stock prices."
Though the markets were previously buoyed by massive federal stimulus spending, Congress is unlikely to advance another rescue package passed before the election. The Republican-controlled Senate adjourned until Nov. 9, signaling that businesses and households would have to wait weeks and possibly months for more aid.
The delayed funds for desperate households and struggling businesses is amplified by the surge in new infections and the growing possibility that local governments might again resort to issuing stay-at-home orders to suppress the spread of the virus, jeopardizing the fragile economic recovery.
The election adds to the uncertainty. For months Republicans have insisted on a smaller aid package, and the two parties have remained deadlocked. House Democrats passed a $2.2 trillion version earlier this month, over GOP opposition. Investors will have to game out how various outcomes might further delay or fast-track an eventual stimulus or alter its size.
“If we see a blue wave, this could certainly alter the path of negotiations given the leverage Democrats will have going into 2021 and the increased prospects for a robust stimulus plan during [Democratic nominee Joe] Biden’s first 100 days as president,” said Nicole Tanenbaum, partner and chief investment strategist at Chequers Financial Management. Conversely, she said, a GOP-controlled Senate could be less willing to negotiate with a Democratic president, ultimately leading to a smaller spending bill.
“Trying to anticipate President Trump’s actions or reactions has been fool’s work for four years,” said Michael Farr, president of Farr, Miller & Washington. “If he becomes a lame duck or if he is reelected, he faces a future no longer concerned with reelection.”
If Biden wins, Farr suspects that a rescue package would not arrive until after the inauguration but that it would be “a big one.” If Trump wins, he said, Congress would most likely reach a deal in December, though it probably would be smaller than what House Speaker Nancy Pelosi (D-Calif.) would want. In a third scenario, in which Trump is a lame-duck president, Congress could pass a smaller package in December followed by a new spending proposal in the new year.
“Markets hate surprises,” Farr said, “and almost anyway you look at it, the next week and months to follow have a higher than average chance of seeing a make-you-jump event.”