U.S. Stocks Fall More Than 2% as Infections Rise

By Caitlin Ostroff and Gunjan Banerji

The S&P 500 dropped Friday and headed toward a weekly loss as daily coronavirus infections increased rapidly in some states, stoking worries about a slowdown in the economy's reopening.

The broad stock-market gauge fell 2.2%. The Dow Jones Industrial Average lost almost 700 points, or 2.7%. The Nasdaq Composite fell 2.2%.

The S&P 500 and Dow were on track for weekly losses of at least 2.5%. The tech-heavy Nasdaq is down 1.4% for the week.

A number of states, including Arizona, Texas, South Carolina and Florida, saw confirmed cases rise by more than 30% over the past week, according to a Wall Street Journal analysis of data from Johns Hopkins University.

Those concerns flared up Friday as the Texas governor issued an executive order limiting certain businesses to contain the spread of Covid-19.

"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?"

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

"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 dramatic 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.

Major indexes have rallied more than 35% from their March lows, in part because of the Federal Reserve's moves to calm markets.

"It's very fleeting," said Anik Sen, global head of equities at PineBridge Investments, of the market's reaction to new cases.

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 8.1%, while Wells Fargo retreated 6.5%.

Shares of Nike declined 6.8% 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]