Stocks go into reverse as virus fears resurface

LONDON: Stock markets fell on Tuesday as fears sparked by fresh lockdowns and bad economic news prompted profit-taking after strong gains the previous session.

European indices slipped after a pessimistic growth forecast by the European Commission which said that the eurozone economy will plunge 8.7 per cent in 2020 due to the coronavirus crisis.

“Stocks in London and on the continent are lower as the EU Commission issues a bleak outlook for GDP growth, pouring cold water on the economic recovery narrative that had held sway over the past few sessions thanks to data from the US and China,” said Chris Beauchamp, chief market analyst at IG trading group.

Sentiment in Europe and US was also undermined by a bout of late selling in Chinese markets, although Shanghai managed a slightly firmer close. European markets were up to 1.5 per cent lower by the mid-afternoon.

On Wall Street the Dow Jones index fell 200 points at the opening. “Investors are pausing for breath,” observed Fiona Cincotta, analyst at City Index. The easing of lockdown measures and reopening of economies has been the key driver of a months-long surge across equities, but a new surge of infections in several countries gave investors pause.

Fawad Razaqzada at ThinkMarkets said it was unclear whether Tuesday’s pullback was just a limited retracement “or something more significant”. For now, he said, “the path of least resistance remains to the upside despite today’s weakness”.

Wall Street stocks were mostly down early on Tuesday, giving back some of the recent gains in a market that has appeared resilient despite surging US coronavirus cases. About 15 minutes into trading, the Dow Jones Industrial Average was down 0.7 per cent at 26,103.78.

The broad-based S&P 500 shed 0.3 per cent to 3,171.12, while the tech-rich Nasdaq Composite Index added 0.2 per cent at 10,451.18. Major US indices gained more than 1.5 per cent on Monday, with the Nasdaq finishing at a fresh record, betting that continued stimulus from Washington and the trend of the reopening economy would more than offset rising COVID-19 counts in Texas, Florida and other US states.

But analysts said the early pullback Tuesday suggested the rally was losing steam. Investors are beginning to focus on the upcoming second-quarter earnings period, which begins in earnest next week.

Companies in the S&P 500 are projected to suffer an average 43.8 per cent drop in profits during a period devastated by coronavirus shutdowns, according to Factset.