Market Commentary: Virus reappearance stoke risk-off sentiment

StockFanatic

Publish date: Fri, 12 Jun 2020, 12:13 PM

· Worries over a resurgence in coronavirus cases in some US states sent US stocks, oil prices and Treasury yields sharply lower. Conversely, the Dollar and gold prices rose as investors sought to avoid risk. The CBOE volatility index, a barometer of investor anxiety, posted its largest one-day point gain since March 16.

· Growing fears of a second wave of coronavirus infections sent the US stock market tumbling on Thursday, pulling the Dow Jones Industrial Average down more than 1,800 points, its worst day since March.

· The Dow Jones Industrial Average fell 1,861.82 points, or 6.9%, to 25,128.17, the S&P 500 lost 188.04 points, or 5.89%, to 3,002.1 and the Nasdaq Composite dropped 527.62 points, or 5.27%, to 9,492.73.

· In the past few days, investors have seen more signs that the smooth reopening they had been hoping for may be increasingly difficult to achieve, throwing into doubt hopes for a nascent economic recovery. Adding to investors' worries, top officials increasingly believe the economy's recovery from the pandemic-fuelled recession will be slow and uneven.

· At the conclusion of its two-day monetary policy meeting this week, the US Federal Reserve released its first pandemic-era economic outlook, after which Chair Jerome Powell warned of a "long road" to recovery.

· Economic data appeared to back up the Fed's gloomy economic projections, with jobless claims still more than double their peak during the Great Recession and continuing claims at an astoundingly high 20.9 million.

· A year-on-year drop in core producer prices also reflected the central bank's disinflationary concerns.

· Treasury Secretary Steven Mnuchin said the US shouldn't shut down the economy again even if there is another surge in coronavirus cases.

· Mnuchin added that he believes President Donald Trump made the right decision to urge states to ease social distancing rules that have crippled the US economy. He said that in the event of a resurgence, it will not be necessary to impose restrictions again because Covid-19 testing and contact tracing are improving, and officials understand more about how to contain outbreaks.

· Before Thursday, US markets had been on an optimism driven rally without a real sell-off, so some profit-taking should not come as a surprise.

· Despite Thursday's sell-off, the S&P 500 and Dow remain above the intraday lows reached on March 23. Most of those gains had been driven by stocks that would benefit from the economy reopening, including airlines, cruise lines and retailers.

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