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Dow drops 1,800 points — its worst day since March — as U.S. coronavirus cases rise

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The Dow Jones industrials lost more than 1,800 points, nearly 7 per cent, on Thursday as increases in coronavirus cases deflated optimism that the economy could recover quickly from its worst crisis in decades.

The pullback Thursday comes after the market has been screeching higher for more than two months at a pace that many skeptics say was overdone and didn’t reflect the dire state of the economy.

A day earlier, the Federal Reserve said the road back to recovery would be long.

Can Canada handle a 2nd wave of COVID-19?
Can Canada handle a 2nd wave of COVID-19?

Canada’s main stock index was also down, dropping more than 400 points at 15,254.49.

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The selling comes as coronavirus cases rise in the U.S., with some of the increase likely tied to the reopening of businesses and the lifting of stay-at-home orders. The number of cases is increasing in nearly half the states, according to an Associated Press analysis, a worrying trend that could intensify as people return to work and venture out during the summer.

Investor optimism for a speedy recovery in the economy was also dimmed by the Federal Reserve, which warned Wednesday that the road to recovery from the worst downturn in decades would be long and vowed to keep rates low for the foreseeable future.

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Those factors, along with the recent run-up in stock prices, set the stage for the wave of selling Thursday, said Sal Bruno, chief investment officer at IndexIQ.

“It’s not surprising to see a bit of a sell-off, given the furious rally we’ve had coming out of the lows, despite the fact that the economy was not doing great,” Bruno said.

“The fact that (the Fed) is talking about keeping interest rates this low through 2022 is a little eye-opening for a lot of folks.”

The S&P 500 plunged 5.9 per cent to 3,022 points. The Nasdaq composite, which rose above 10,000 for the first time a day earlier, slid 5.3 per cent.

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Small company stocks continued to bear the brunt of the selling, a signal that investors are becoming more pessimistic about a broad recovery in the economy. The Russell 2000 index lost 7.5 per cent.

Sewage can warn of coronavirus second wave: expert
Sewage can warn of coronavirus second wave: expert

European and Asian markets also fell.

Bond yields fell sharply, a sign of increasing caution among investors. The price of oil also dropped 8 per cent as investors again worried that a slumping economy would need less energy.

Nearly all of the companies in the S&P 500 were down. Technology, financial, industrial and health care stocks accounted for much of the market’s broad slide. Energy stocks were the biggest losers as crude oil prices fell sharply.

Bond yields fell and the price of gold surged as worried investors shifted money into the traditional safe-haven assets.

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Emergency rescue efforts by the Fed and Congress helped arrest the market’s staggering 34 per cent skid in February and March. Since then, the market had been riding a wave of investor optimism that the economy will bounce back by the end of the year, if not sooner, as businesses reopen and people go back to work.

But confidence in that scenario is waning as infections and fatalities continue to climb in the U.S. and elsewhere.

Investors are still waiting for more data to see whether the spike in COVID-19 cases is a sign of a possible second wave of the infection, said Charlie Ripley, senior investment strategist for Allianz Investment Management.

“We think the recovery is largely underway, but there is still some considerable uncertainty on the path we have ahead,” Ripley said. “If we see some more follow-on of people coming back to work and consumer sentiment picking up, that will be a positive sign for a faster recovery.”

— With files from the Canadian Press and a file from Erica Alini at Global News