A collection of unnerving, economic and political events — not just one dose of bad news — spurred an ugly Wall Street selling spree Thursday, June 11.
Wall Street’s remarkable revival from a coronavirus-linked crash came to an abrupt halt as stocks took stomach-churning tumbles. The drops Thursday reminded a lot of folks of the sharp declines seen in mid-March when the battles against a global pandemic were first starting.
The venerable Dow Jones Index lost 1,862 points — or 6.9% — to fall below 26,000 points for the first time since June 2. The broader S&P 500 lost 5.9%. The technology-heavy Nasdaq index fell 5.3% after setting new highs three trading days in a row.
What’s most surprising about this market rout was there was no obvious culprit. Investors and analysts pointed to unsetting jobless trends and spiking COVID-19 cases. Here are my eight estimations at who’s mostly to blame for the markets’ upheaval.
1. Profit takers
Stocks started the trading day having rebounded by 40%-plus since late March’s market bottom, depending on which index you watch.
Those kinds of swift gains left the market vulnerable, especially considering all the economic, political and medical uncertainties surrounding the coronavirus. So to some degree, it’s a “what took so long?” moment.
In a nutshell, numerous investors thought it was a good time to take their profits and sell.
2. The jobless
Before Thursday, stocks had rallied thanks to a whiff of economic turnabout highlighted by a surprising and not-so-terrible jobs report last Friday. The report showed U.S. employers added 2.5 million jobs in May, coming off 22 million lost in March and April.
But on Thursday more ugly data showed 1.5 million new U.S. unemployment claims including 258,000 in California, exposing further the enormity of record-breaking job losses tied to the pandemic lockdown.
And traders likely flinched knowing how many people are out of work — a staggering 44 million.
3. The Fed
Initially, most folks cheered when Federal Reserve Board chairman James Powell on Wednesday announced the central bank plans to keep the interest rates it controls at or near zero through 2022.
It took a day, but many investors concluded that Powell’s cheap money policy is tied to a dour Central Bank that sees extended economic pain for the next three years.
That’s reason alone to sell stocks.
Stocks have been rallying on the promise of renewed business activity from states reopening their economies after “stay at home” mandates.
Most folks expected some increases in coronavirus cases, hospitalizations, and deaths from the added human interactions.
But the pandemic’s unexpectedly swift surge in Arizona, raising questions if the state’s hospitals can handle the cases, leaves doubts if the economy can get anywhere near full capacity any time soon. California cases also are on the rise.
Protests against police brutality continue across the nation.
And while investors certainly support free speech, they worry what protesting — even peacefully — does to business. Stock prices track profits, not philosophies.
News that unrest in Seattle has grown to a point that protesters have taken over one neighborhood is a stark reminder that the unrest may not be quiet any week soon.
Masks seem to provide a certain level of medical and psychological comfort in the battle against the pandemic.
Happy consumers are key to any business revival. Yet objections are rising to mandatory mask use, with Orange County being the latest municipality to drop the face-covering requirement.
So masks have become a new line-in-the-sand decision for many businesses. That stance lowers the chance for an economic rebound strong enough to support high stock prices.
The company that popularized the drop-in-and-stay café lifestyle now says the coronavirus has rendered that atmosphere a tough sell.
So the coffee shop giant will shut 400 stores and concentrate on drive-through and takeout business.
This signals to traders that many consumer-facing businesses will have to dramatically change their business plans to survive the pandemic.
Starbucks shares fell 8% Thursday.
News that the Anaheim theme park is due to reopen July 17 was warmly greeted by fans.
But to investors, it’s yet another example of how much business will have to rethink operations in an era where social distancing rules.
Disneyland said Wednesday it will be harshly limiting attendance, not selling more tickets at this time, and those lucky enough to get in will find far fewer attractions to enjoy.
That protocol is going to suppress profits, for sure. Walt Disney Co. shares fell 8% Thursday.
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Author: Jonathan Lansne