A rally in U.S. stocks fizzled Monday after California
rolled back its reopening plans, spurring worries about another coronavirus
lockdown.
Major stock indexes had surged earlier in the session, with
the Dow Jones Industrial Average rising more as much as 563 points. But
sentiment shifted after California moved to close all indoor dining, bars and
other businesses. The Los Angeles Unified School District, the nation’s second
largest, said it would start the school year online.
The Dow still eked out a gain of 10.50 points, or less than
0.1%, to close at 26085.80.
The S&P 500 fell 29.82 points, or 0.9%, to 3155.22. The
index briefly turned positive for the year during the session, before stocks
reversed course. The technology-heavy Nasdaq Composite, which had been trading
at record highs in recent days, dropped 226.60 points, or 2.1%, to 10390.84.
Markets have remained resilient in recent weeks despite
rising coronavirus infections in many U.S. states. The Dow and S&P 500 have
surged more than 40% since late March, though they remain down nearly 12% and
7% from their February records, respectively.
“The markets are looking out six months from now, and saying
that things will be a whole lot better by then,” said Randy Frederick, vice
president of trading and derivatives at Charles Schwab. He cautioned that
uncertainty about the pandemic or the upcoming U.S. election could still sour
the market’s rally in the coming months.
Pfizer shares added $1.38, or 4.1%, to $35.21, lifting the
Dow. The pharmaceuticals giant and German biotech company BioNTech said Monday
that they received “fast track” designation from the Food and Drug Administration
for two coronavirus vaccine candidates that they are partnering on, allowing
them to speed up testing.
Shares of Goldman Sachs, another Dow constituent, climbed
$3.32, or 1.6%, to $208.88 ahead of its earnings release later this week.
Tesla went on another wild ride. Shares of the electric-car
maker surged 16% at one point Monday before shifting gears to fall $47.59, or
3.1%, to $1497.06, their biggest reversal into negative territory in more than
10 years. They have still more than tripled in value this year.
Investors were looking ahead to second-quarter earnings
season for any signals about the shape and pace of economic recovery following
the disruption caused by the pandemic.
Economists generally agree that the quarter ended in June
was likely the worst of the downturn, but the extent of the damage is still
unclear. The rise in U.S. coronavirus cases has prompted renewed restrictions
on business and social gatherings in some areas and threatens to slow down the
economy’s revival.
Earnings for S&P 500 companies are expected to have
declined nearly 45% from the second quarter of 2019, which would mark the
steepest year-over-year drop since 2008, according to FactSet.
“There’s some optimism about the tone of the upcoming
earnings,” said Jane Foley, senior foreign exchange strategist at Rabobank.
“People have written off the second quarter, but they have high expectations
for the third quarter.”
Shares of PepsiCo rose 45 cents, or 0.3%, to $134.91 as the
food and beverage giant posted better-than-expected revenue for the latest
quarter. The company said snacks sales rose as Covid-19 shelter-in-place
measures and closures eased during the period.
“The environment has remained volatile and much uncertainty
remains about the duration and long-term implications of the pandemic,” Pepsi
Chief Executive Ramon Laguarta said.
Earnings from big banks, including JPMorgan Chase and Wells
Fargo, and Netflix are on tap for later in the week.
Total U.S. coronavirus cases topped 3.3 million on Monday
and the nation’s death toll exceeded 135,000, according to data compiled by
Johns Hopkins University. Thirty-two states had increases of at least 10% in
cases over the past week, prompting public-health experts to warn it may become
difficult to halt the spread.
“The rising numbers of cases in the U.S. are just not
generating as much fear as they had before,” said Seema Shah, chief strategist
at Principal Global Investors. “The death rates aren’t rising as quickly as
infection rates. It suggests that the virus is being managed better than before
or it’s more focused on the younger generation, suggesting a less severe
economic reaction.”
Seven of the S&P 500’s 11 sectors were in negative
territory on Monday, with consumer-discretionary, communications, real estate
and technology stocks among the worst performers.
Shares of Olive Garden owner Darden Restaurants, which has
been hurt this year by coronavirus-related cafe closures, gained 81 cents, or
1.1%, to $72.90 after it was upgraded by analysts at JPMorgan.
Shares of chip maker Maxim Integrated jumped $5.20, or 8.1%,
to $69.29 after Analog Devices said it would buy its rival in an all-stock
transaction. The deal values the combined companies at more than $68 billion,
according to their own valuations. Analog was down $7.25 a share, or 5.8%, to
$117.25.
Overseas, the pan-continental Stoxx Europe 600 rose 1%. Most
major Asian markets ended the day sharply higher, with the Shanghai Composite
Index rising 1.8%.
The Shanghai index has climbed nearly 13% this year, making
it one of the world’s best-performing major indexes. Growing conviction that
China’s economy is recovering from the coronavirus has encouraged investment in
Chinese stocks from foreign institutions and the millions of individual
investors who dominate trading in China.
Vincent Wen, an investment manager at KCG Securities Asia,
said the recent Chinese rally has been too fast, driven by official messages
and the prospect of easy monetary policy.
”Fundamentally speaking, the real economy remains weak and
the path to recovery will be bumpy,” Mr. Wen said.
The yield on the 10-year U.S. Treasury ticked up to 0.638%,
from 0.633% on Friday, as investors sold government bonds. Yields move in the
opposite direction from prices.
— Joanne Chiu contributed to this article.
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