Wall Street stocks followed European bourses sharply lower on concerns that a rising number of coronavirus infections will prompt even tougher social restrictions that further dampen business activity.
The US S&P 500 index was down 2.7 per cent in afternoon trading on Monday, on track for the heaviest one-day fall since early September, as the latest infection data undercut hopes of the virus being contained.
The sell-off was broad, with economically sensitive sectors like energy, financials and industrial groups under pressure. Travel and leisure companies sustained heavy selling.
It followed a gloomy day in Europe, in which Frankfurt’s benchmark Dax index slumped 3.7 per cent. Germany’s SAP tumbled as much as 22 per cent — its worst one-day fall since the mid-1990s — after the business software group warned that renewed lockdown measures had hit demand for its services.
“Nothing is to be gained by pretending that the pandemic and the economic pain it has caused are coming to a swift end,” said David Kelly, chief global strategist at JPMorgan Asset Management.
“Rather, investors, policymakers and the general public would all be well served by accepting the reality of both what it will take and how long it will take to recover from the pandemic recession.”
US coronavirus case numbers have surged in recent days, taking the seven-day total to a record for the pandemic. The UK on Monday said a further 20,890 people had tested positive for the virus. In the EU, Italy and Spain announced sweeping measures on Sunday to address a jump in new cases.
“Spain and Italy moving to enhanced restrictions to combat their growing case numbers is clearly spooking European equities,” said Charles Hepworth, investment director at Zurich-based asset manager GAM. With the pandemic worsening globally and the US presidential election looming, “it’s a very choppy trading period that we’re going into”, he added.
Wall Street’s Vix index climbed 4.4 points to 31.9, the highest level since early September. The rise in the so-called “fear gauge” signals traders are bracing for further jolts of volatility over the next month.
Mark Meadows, the White House chief of staff, said over the weekend: “We’re not going to control the pandemic. We are going to control the fact that we get vaccines, therapeutics and other mitigation areas.”
Energy stocks were among with worst fallers in the US and Europe, reflecting a decline in crude oil prices. Brent crude, the international benchmark, slipped more than 3 per cent to below $41 a barrel on fears that rising infections would hit global demand.
Travel groups also fell sharply. British Airways parent IAG dropped 7 per cent in London while Royal Caribbean Cruises, Norwegian Cruise Lines and Carnival all fell by around 10 per cent in New York.
Investors shifted into Treasuries, considered to be haven assets during times of market tumult. The 10-year yield fell 0.04 percentage points to 0.8 per cent, reflecting an increase in the price of the asset. The dollar advanced 0.2 per cent against a basket of six peers.
Traders have been waiting in vain for signs the US Congress might pass more economic stimulus measures. The chances that a deal might be passed before the November 3 election dimmed this weekend, when Steven Mnuchin, Treasury secretary, said there remained hurdles to reaching an agreement. Mr Mnuchin and House Speaker Nancy Pelosi were set to speak later on Monday afternoon.
“We think stimulus talks really are dead now,” said Win Thin, global head of currency strategy at New York-based financial services group BBH.
Savvas Savouri, chief economist for Toscafund Asset Management, said the impasse amounted to pre-election “politicking” but said there was likely to be a deal approved after polling day.