Dow slides over 800 points, while S&P 500 veers close to correction territory

U.S. stocks fell sharply on Monday amid concerns about the COVID-19 trajectory in Europe, as news reports allege major global banks continued doing business with customers suspected of wrongdoing, and a lack of progress toward another round of fiscal stimulus out of Washington.

What are major benchmarks doing?

The Dow Jones Industrial Average
US:DJIA
fell 822.57 points, or 3%, to 26,827. The Nasdaq Composite
US:COMP
shed 174 points, or 1.6%, to 10,620. The S&P 500
US:SPX
slipped 73 points, or 2.2%, to 3,245. If the broad-market index finishes below 3,222.76, it would enter correction territory, defined as a 10% drop from its recent peak.

Major U.S. benchmarks have suffered three consecutive weekly losses. The Dow fell 244.56 points Friday, or 0.9%, to end at 27,657.42, dragging the blue-chip gauge to a 0.03% weekly decline. The S&P 500 and the tech-heavy Nasdaq Composite both booked weekly losses of 0.6%.

The small-cap Russell Index
US:RUT
 found favor, however, logging a 2.6% rally last week.

What’s driving the market?

U.S. and European equities tumbled as a rising number of COVID-19 cases across several European economies sparked fears of renewed restrictions on activity, a development that would slow the global economic recovery’s pace.

London Mayor Sadiq Khan was in talks on Monday to discuss introducing new measures to stem the coronavirus’ spread. Meanwhile, the regional government overseeing Madrid ordered a lockdown for some areas of Spain’s capital.

“What we need to see is to what extent the rise in cases impacts the economic recovery. Data has basically stalled over the summer, so if [European policy makers] manage to keep activity going with ‘minor’ measures, data can hold up. But if the situation deteriorates further or self-discipline impacts growth even further, we could have a tougher few months for European assets,” said Esty Dwek, head of global macro strategy for Natixis Investment Managers, in e-mailed comments.

U.S. and European bank shares fell sharply after BuzzFeed News and other outlets published articles alleging that the world’s most powerful banks continued doing business with customers they suspected of engaging in money laundering and other illicit activities.

The SPDR Financial Select Sector ETF dropped 3.8%, underperforming the selloff in the broader stock market.
US:XLF
 Shares of JP Morgan Chase & Co.
US:JPM,
which was mentioned in the investigative news report, fell 4%.

Investors also weighed the potential market implications of the death of Supreme Court Associate Justice Ruth Bader Ginsburg, which appeared set to spark an intense battle over the nomination of her successor, complicating an already bitter presidential election race and further clouding prospects for an agreement on a new round of fiscal stimulus to shore up a U.S. economy.

President Donald Trump said he would announce a nominee on Friday or Saturday, while Democrats contend the winner of the Nov. 3 election should choose the nominee after the Republican-led Senate in 2016 used that rationale to block a nomination by Barack Obama following the death of Associate Justice Antonin Scalia.

Read:Biden to senators: Extinguish the ‘flames’ engulfing U.S. politics by not ‘jamming’ through a Supreme Court justice

“Both sides of the political spectrum were energized by the president’s actions only complicating the already volatile U.S. election landscape. Indeed with economic data stalling the story in the markets could turn to geopolitical risk which by its very nature suggests far more volatile price action in week’s ahead,” said Boris Schlossberg, managing director of FX strategy at BK Asset Management, in a note.

Investors continued to watch for signs of the much-discussed rotation from high-growth shares to more beaten-down stocks in industries like retail and energy. Tech-related stocks, which had led the market’s rally back from the March pandemic lows, have flagged in recent weeks, leading the market back down from all-time highs.

But Monday’s selloff was led by more growth-sensitive sectors, reflecting the fickle swings in market expectations around an uncertain U.S. economic recovery.

On Monday, Dallas Federal Reserve President Rob Kaplan said the Fed’s new forward guidance could create “excesses” in financial markets. Other central bankers including New York Fed President John Williams will speak throughout the day.

In economic data, the Chicago Fed’s national activity index, which is designed to gauge overall U.S. economic activity, fell to 0.79 in August from a revised 2.54 in the prior month.

Which companies are in focus?
  • Shares of electric truck maker Nikola Corp.
    US:NKLA
     dropped 22% after founder Trevor Milton resigned as executive chairman following allegations by a short seller the company had misled investors about its technology.

  • Oracle Corp.
    US:ORCL
     shares were up 1.7% after Trump on Saturday said he had given his “blessing” to a proposed deal that would see the company and Walmart Inc.
    US:WMT
     take over U.S. operations of Chinese-owned app TikTok. Walmart shares were up more than 1%.

  • Shares of Toll Brothers Inc.
    US:TOL
    were up 0.6% even after the luxury home builder issued a upbeat mid-quarter update.

  • Microsoft Corp.
    US:MSFT
    announced the acquisition of ZeniMax Media and its game publisher Bethesda Softworks for $7.5 billion in cash. Its shares were down 1.3%.

  • Shares of electric car maker Tesla Inc.
    US:TSLA
     fell 2.9% a day ahead of its battery-technology day.

What are other markets doing?

The yield on the 10-year Treasury note
BX:TMUBMUSD10Y
 fell 3.5 basis points to 0.66%. Bond prices move inversely to yields.

The ICE U.S. Dollar Index
US:DXY,
which tracks the performance of the greenback against its major rivals, jumped 0.9%, paring its year-to-date losses to 2.8%.

Gold futures
US:GCZ20
slid 3.6% at $1,891.90 an ounce. The U.S. crude oil benchmark

US:CL
 slumped 5.7 % to $39.06 a barrel.

The Stoxx Europe 600 Index
XX:SXXP
 dropped 3%, while the U.K.’s benchmark FTSE
FR:UKX
was down 3.5%. In Asia, Hong Kong’s Hang Seng Index
HK:HSI
fell 2.1% and the Shanghai Composite Index
CN:SHCOMP
 fell 0.6%, while Japan’s Nikkei
JP:NIK
was closed for a public holiday.

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