Dow Sinks 1,800 as Virus Cases Rise, Deflating Optimism

Stocks fell sharply on Wall Street Thursday as coronavirus cases in the U.S. increased again, deflating recent optimism that the economy could recover quickly from its worst crisis in decades.

The Dow Jones Industrial Average sank more than 1,800 points and the S&P 500 dropped 5.9%, its worst day since mid-March, when stocks had a number of harrowing falls as the virus lockdowns began.

Many market watchers have been saying that a scorching comeback in the market since late March was overdone and didn’t reflect the dire state of the economy. The S&P 500 rallied 44.5% between late March and Monday.

Investor optimism for a speedy recovery in the economy was also dimmed by the Federal Reserve, which warned Wednesday that the road to recovery from the worst downturn in decades would be long and vowed to keep rates low for the foreseeable future.

The S&P 500 dropped 188.04 points to 3,002.10, it’s biggest decline since March 16. The Dow skidded 1,861.82 points, or 6.9%, to 25,128.17. The Nasdaq composite, which rose above 10,000 for the first time a day earlier, lost 527.62 points, or 5.3%, to 9,492.73.

Small company stocks continued to bear the brunt of the selling, a signal that investors are becoming more pessimistic about a broad recovery in the economy. The Russell 2000 index fell 111.17 points, or 7.6%, to 1,356.22. European and Asian markets also fell.

Bond yields fell sharply, a sign of increasing caution among investors. The price of oil also dropped 8.2% as investors again worried that a slumping economy would need less energy.

Nearly all of the companies in the S&P 500 closed lower. Technology, financial, industrial and health care stocks accounted for a big slice of the market’s broad slide. Energy stocks were the biggest losers as crude oil prices fell sharply. Bond yields fell and the price of gold surged 1.1% as investors shifted money into the traditional safe-haven assets.

Emergency rescue efforts by the Fed and Congress helped arrest the market’s staggering 34% skid in February and March. Since then, the market had been riding a wave of investor optimism that the economy will bounce back by the end of the year, if not sooner, as businesses reopen and work resumes. But confidence in that scenario is waning as infections and fatalities continue to climb in the U.S. and elsewhere.

Anxious investors shifted more money into government bonds Thursday, sending yields broadly lower. The yield on the 10-year Treasury yield slid to 0.66% from 0.74% late Wednesday, a big move. Last Friday it briefly rose above 0.90%, and it started the year at 1.92%.

The Labor Department said Thursday that about 1.5 million people applied for U.S. unemployment benefits last week, another sign that many Americans are still losing jobs even as the economy begins to gradually reopen.

Other jobs data have been more encouraging. A report on Friday showed that the U.S. job market surprisingly strengthened last month as employers added 2.5 million workers to their payrolls.

That report helped stoke optimism among investors that the economy can climb out of its current hole faster than forecast. But the Fed estimated Wednesday that the economy will shrink 6.5% this year, in line with other forecasts, before expanding 5% in 2021.