Stocks claw back losses with virus cases in focus

US stocks struggled on Friday to recover from a sharp global sell-off sparked by renewed fears over the impact of the coronavirus pandemic.

The S&P 500 closed 1.3 per cent higher in New York, bouncing back a day after suffering its sharpest one-day fall since March. The rally was far from convincing, however, with the index having erased an early advance and briefly turned negative mid-afternoon.

For the week, the S&P 500 slid 4.8 per cent, its sharpest weekly loss since March, to put it back in negative territory for the year to date. The Dow Jones Industrial Average and technology-focused Nasdaq Composite also recorded their sharpest weekly losses since March yet remain more than a third above their low points of 2020.

Investors have pulled back this week in response to the Federal Reserve’s assessment of US economic prospects and rising Covid-19 cases in states in the country’s west and south that have eased lockdowns.

Marvin Loh, senior global markets strategist at State Street Global Markets, said the volatility should serve as a reminder that the world is in the middle of a global pandemic. “The unknown has now made its way back to the forefront,” he said. “We are set up for a choppy summer.”

Other analysts said the stock market sell-off was driven primarily by investors turning away from equities since they had become overvalued.

“{Thursday’s] moves may have been as much about some investors deciding to take some money off the table simply due to the recent stellar performance of equities and this snowballing over the course of the day,” analysts at Rabobank said in a note on Friday.

European stocks capitulated late in the session on Friday after Wall Street’s early rebound started to look fragile.

In Germany, the DAX ended 0.2 per cent lower, having been up around 1.7 per cent at midday, while France’s CAC 40 slipped back from an intraday gain of more than 2 per cent to close higher by just 0.5 per cent.

The FTSE 100 finished with a 0.5 per cent gain, having earlier rallied as much as 1.6 per cent. UK investors largely took into their stride figures showing the UK economy’s steepest monthly contraction on record.

Sebastian Raedler, strategist at Bank of America, estimated that European stocks could gain a further 20 per cent by November as coronavirus restrictions ease.

“The violent pullback in European equities this week raises concerns that the 30 per cent rally since mid-March could prove unsustainable against the backdrop of a still-weak economy,” he said.

“However, we think the main planks of the positive thesis are still in place: the virus spread in the main euro area economies continues to fade and governments are lifting their lockdowns, which is set to lead to a pick-up in economic activity from depressed levels.”

In Asia, Tokyo’s benchmark Topix index dropped 1.2 per cent, while South Korea’s Kospi shed 2 per cent and Hong Kong’s Hang Seng was 1 per cent lower.

The yield on US 10-year Treasuries, which moves inversely to bond prices, rose to 0.7067 per cent, after slipping by as much as 0.3 percentage points this week.

Oil prices recouped some of their weekly losses, which were triggered by macroeconomic uncertainty combined with renewed worries about a supply glut. Brent, the international marker, rose 0.9 per cent to $38.90 a barrel, having tumbled 7.6 per cent on Thursday after US data showed crude inventories rose to a record high. West Texas Intermediate, the US benchmark, edged up 0.2 per cent to $36.40.

Additional reporting by Colby Smith

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