Dow sinks 680 points as investors fear rise in coronavirus cases could halt the economic recovery

U.S. stocks fell sharply on Wednesday, following their European counterparts, as investors worried that the latest increase in coronavirus infections could halt the global economic recovery.

The Dow Jones Industrial Average dropped 684 points, or 2.5%. Earlier in the day, the Dow was down more than 800 points. The S&P 500 dipped 2.5% and the Nasdaq Composite traded 2.8% lower.

In Europe, the German Dax index dropped 4.1% to its lowest level since late May and the French CAC 40 slid 3.4%. The FTSE 100 in London fell 2.7%.

The recent uptick in Covid cases has led some countries to reinstate certain social distancing measures. German Chancellor Angela Merkel called on Wednesday for a limited lockdown. Meanwhile, Reuters reported, citing sources, that France was poised to issue a stay-at-home order. In the U.S., the state of Illinois has ordered Chicago to shut down indoor dining.

U.S. coronavirus cases have risen by a record daily average of 71,832 over the past week, data compiled by Johns Hopkins University showed. Meanwhile, coronavirus-related hospitalizations are up 5% or more in three dozen states, according to data from the Covid Tracking Project.

“I think there’s going to be a call for lockdowns the likes of which we’ve seen in Chicago,” CNBC’s Jim Cramer said Wednesday. “The lockdowns without the stimulus equals what we’re seeing.”

“It’s a shame because, had there been stimulus, we’d then be focusing on earnings and the earnings are actually pretty darn good,” he said.

Stocks that would be hurt most by lockdowns or a slowdown in the economy reopening were hit. Shares of Delta Air Lines fell 6.2%. Royal Caribbean shares lost 5.8%. Shares of Facebook, Alphabet and Twitter were also down sharply as their respective CEOs testified in front of Senate members. Facebook and Twitter were off by 4% and 3.7%, respectively, and Alphabet slid nearly 5%.

Investors turned to bonds in their search for safety. The 10-year Treasury note yield fell to 0.75%. The Cboe Volatility Index (VIX), known on Wall Street as the market’s “fear gauge,” jumped above 38 and hit its highest level since June 15.

“Uncertainty about COVID-19-related mobility restrictions and US politics mean we should expect volatility to remain elevated for the balance of the year,” said Mark Haefele, chief investment officer for global wealth management at UBS, in a note. “However, we continue to see upside over the medium term.”

“With ten vaccine candidates in late-stage trials globally, our central scenario is that restrictions can start to be lifted by 2Q21, helping corporate earnings recover to pre-pandemic highs by around the end of 2021,” he said.

Wall Street also pored through the latest batch of corporate earnings for the previous quarter, including those of tech giant Microsoft.

Microsoft reported better-than-expected earnings and revenue for the previous quarter as sales from its cloud business grew sharply. However, the stock dipped 3.7% on light revenue guidance.

“Redmond is continuing to see strength in the field as more enterprises move to the cloud,” Wedbush analyst Dan Ives said in a note. “This is a stark contrast to the earnings debacle we saw from mature software stalwart SAP earlier this week which highlights the clear winners and losers in this cloud shift with MSFT leading the way.”

Boeing reported a quarterly loss that’s narrower than expected, but the company said it plans to cut thousands of additional jobs through 2021 as it adjusts to the long-term drop in air travel demand.

Shares of General Electric gained more than 10% Wednesday after the company reported stronger than forecast revenues and a surprise adjusted profit for the third quarter.

First Solar also posted quarterly numbers that beat analyst expectations, sending its shares up about 11.9%.

— CNBC’s Yun Li contributed reporting.

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