U.S. Stocks Fall More Than 2%, End Week Lower

By Caitlin Ostroff and Gunjan Banerji

The Dow Jones Industrial Average dropped more than 700 points and limped home to a weekly loss as daily coronavirus infections increased rapidly, fanning worries about a slowdown in the economy's reopening.

The S&P 500 fell 2.4% as of the 4 p.m. ET close of trading. The Dow lost 730 points, or 2.8%. The Nasdaq Composite fell 2.6%.

The U.S. marked a daily record of nearly 40,000 new infections. States like Texas, California, Arizona and Florida accounted for nearly half of the confirmed cases reported on Thursday.

Texas governor issued an executive order limiting certain businesses to contain the spread of Covid-19 and rolled back some reopening plans as the state saw a nearly 80% increase in daily coronavirus cases.

The spreading cases around the country put a halt to the optimism that had buoyed markets in recent weeks as states reopened, sending major indexes toward weekly losses after a dramatic rally since March.

The S&P 500 and Dow were on track for weekly losses of at least 2.5%. The tech-heavy Nasdaq is down 1.5% for the week.

"Right now, the market is sort of on hold," said Rhys Herbert, senior economist at Lloyds Banking Group. Investors "are really looking for guidance on what's the next stage: Will we see signs of recovery or is there a danger things slip again?"

Investors have been closely tracking the spread of the virus and developments world-wide have moved markets in recent weeks. Public-health officials said only about 1 in every 10 Covid-19 cases in the U.S. has been identified, and more Americans remain susceptible to the virus.

"This market is an extremely headline driven market," said Peter Giacchi, who heads Citadel Securities' designated market maker floor trading.

Many investors have been optimistic about reopenings around the country and encouraging economic data, helping major indexes stage a recovery.

For example, fresh figures showed U.S. consumer spending rose 8.2% in May after seeing a record drop in April, reflecting looser restrictions on businesses, federal stimulus and stepped-up unemployment payments.

"There's a real tug of war," said Anik Sen, global head of equities at PineBridge Investments.

Traders and analysts were expecting heavy volumes through the end of the day because of Friday's Russell rebalancing, the annual event when FTSE Russell adds and drops stocks from its U.S. benchmarks such as the Russell 2000, resulting in a flurry of trading as index-fund managers reshuffle their holdings.

According to Credit Suisse, this year's rebalance will lead to an estimated $99 billion worth of trading activity on Friday, mostly in the final seconds of the trading day when the New York Stock Exchange and Nasdaq carry out their closing auctions.

Among individual companies, shares of banks and financial companies were some of the worst performers after the Federal Reserve ordered banks to cap shareholder dividend payouts to preserve capital and barred share buybacks in the third quarter. Goldman Sachs Group fell 8.5%, while Wells Fargo retreated 6.6%.

Shares of Nike declined 7% after the athletic apparel company said sales fell 38% in the latest quarter, as mass closures of physical stores amid the pandemic overshadowed surging demand online.

Major Asian equity benchmarks ended the day mixed. Hong Kong's Hang Seng Index dropped 0.9%, while Japan's Nikkei 225 gauge climbed 1.1% by the close of trading. Markets in China remained closed for a public holiday.

In bond markets, the yield on the 10-year U.S. Treasury edged down to 0.641%, from 0.674% Thursday.

--Alexander Osipovich contributed to this article.

Write to Caitlin Ostroff at [e-mail] and Gunjan Banerji at [e-mail]