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

By Gunjan Banerji and Caitlin Ostroff

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

The spreading cases around the country dampened the optimism that had buoyed markets in recent weeks.

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

Faced with the rising infections, the 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.

"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?"

The Dow lost 730.05 points, or 2.8%, to 25015.55, dragged down by shares of Goldman Sachs Group and JPMorgan Chase. The S&P 500 fell 74.71 points, or 2.4%, to 3009.05. The Nasdaq Composite shed 259.78 points, or 2.6%, to 9757.22.

The Dow and S&P 500 lost 3.3% and 2.9%, respectively, this week. The tech-heavy Nasdaq fell 1.9%.

Investors have been closely tracking the spread of the virus. U.S. stocks have soared more than 30% from their lows in March, boosted by the prospect of an economic reopening and the Federal Reserve's stimulus.

Now, as states have reopened and people have been heading back to restaurants and bars, many have grown uneasy about a surge in cases and the pace of any economic recovery.

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.

In bond markets, the yield on the 10-year U.S. Treasury edged down for the third consecutive week to 0.636%, from 0.674% Thursday. Yields fall as bond prices rise.

Still, some remain optimistic about the broader reopening and recent data has been encouraging. 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.

Friday was also marked by heavy trading because of the Russell rebalancing, the annual event when FTSE Russell adds and drops stocks from its U.S. benchmarks such as the Russell 2000. The action is concentrated at the close of the day, since index funds generally seek to track daily closing prices of stocks in their portfolios.

Nasdaq said it experienced record volumes in the last seconds of trading due to the rebalance, with nearly 1.6 billion shares changing hands in Friday's closing auction, setting a new volume record for the exchange-operator.

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 $17.91, or 8.7%, to $189.19. Wells Fargo retreated $2.03, or 7.4% to $25.34.

Shares of Nike declined $7.73, or 7.6%, to $93.67 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.

Tensions between the U.S. and China have also been rising recently. The Wall Street Journal reported Friday that Beijing has signaled to Washington that U.S. pressure over matters China considers off limits could threaten Chinese purchases of farm goods under the Phase One trade deal.

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%. Markets in China remained closed for a public holiday.

--Alexander Osipovich contributed to this article.

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