Wall Street closed out another punishing week Friday with the S&P 500 posting its first back-to-back monthly loss since the pandemic first gripped the economy in March.
The S&P 500 dropped 1.2% and ended the week with a 5.6% loss, its worst in seven months. Sharp drops in big technology stocks drove much of the selling, reflecting worries that expectations built too high for some of the market’s biggest stars, including Apple and Amazon. Investors have bid up shares in those and other Big Tech companies this year, anticipating they would deliver strong profits, but their latest results and uncertain outlooks left traders wanting.
Wall Street was already wracked by fears about the potential economic damage from surging coronavirus counts around the world, Washington’s inability to provide more support for the economy and uncertainty surrounding the presidential election. President Donald Trump often cites the stock market as a barometer of his administration’s performance on the economy.
“Today, you have investors who are taking profits in the tech stocks that they expected to do well in the third quarter,” said Sam Stovall, chief investment strategist at CFRA. “And now the focus once again is on Covid-19, and investors are just selling ahead of a weekend.”
Much of the market’s focus Friday was on Apple, Amazon, Facebook and Google’s parent company. They are four of the five biggest stocks in the S&P 500 by market value, which gives their movements outsized sway on the index, and they were principal forces behind Wall Street’s huge rally since March.
All four reported profit for the summer that was even better than analysts were expecting, just like the other stock in the Big Five did earlier this week. But also like Microsoft, most nevertheless fell as investors found reasons for concern within their reports.
Analysts say that’s an indication that expectations may have built too high through the market’s big rally and that investors’ attention may simply be elsewhere given all the uncertainties sweeping the market.
Much of the market’s focus has been on what’s to come for the economy when coronavirus counts are rising at troubling rates across Europe and the United States.
Several European governments have already brought back restrictions on businesses to slow the spread of the virus. Even if the strictest lockdowns don’t return in the United States, the worry is the pandemic’s rising death toll will drive customers away from businesses by itself and undercut profits.
“Because of the spike in Covid-19 overseas, with Germany and France in lockdown mode once again, the implication is that we could be heading into a double-dip recession in Europe, and that would have negative future implications for our economic growth.” Stovall said.
Meanwhile, Washington has been unable to deliver more aid to the economy. That’s despite investors and economists saying it’s sorely needed following the expiration of supplemental benefits for laid-off workers and other stimulus approved by Congress earlier this year.
“The Fed is saying this, the market is saying this, and most economists are beginning to adjust their fourth quarter forecasts with the expectation that growth without stimulus is going to be hard to achieve, especially as COVID-19 cases seem to set new daily records each day,” said Kevin Giddis, chief fixed income strategist at Raymond James.