Rising COVID-19 Cases Deepen Stock Selloff

Stocks tumbled again on Wednesday, as worries about rising COVID-19 cases and hospitalizations sent investors toward the safe havens of U.S. Treasuries and the dollar. The S&P 500 index fell 3.53%, its worst single-day loss since June.

Every sector lost ground, with Energy, Information Technology and Communication Services faring the worst. The Cboe Volatility Index (VIX) jumped above 40, to near June’s high.

“The economic recovery remains choppy and at the mercy of the COVID-19 virus,” says Schwab Chief Investment Strategist Liz Ann Sonders.

Investors also remain concerned about stalled talks between congressional Democrats and the White House over a potential fiscal stimulus package to support small businesses and consumer spending during the pandemic, Liz Ann says.

Investor optimism had become excessive since mid-October, as well, leaving markets vulnerable to bad news—which happened this week, as the coronavirus pandemic worsened.

“Volatility is likely to remain elevated into Election Day, and even longer if there’s a contested result,” Liz Ann says. “Even absent that scenario, the lack of fiscal relief, coupled with the virus’ impact on economic activity, could put a significant dent in the economic trajectory.”

Global shutdowns roil markets

Germany and France on Wednesday announced renewed restrictions aimed at controlling rising COVID-19 cases. Despite a near-term hit to the economy, the restrictions could boost the longer-term recovery, according to Schwab Chief Global Investment Strategist Jeffrey Kleintop.

Europe’s stronger safety net may also support the region’s recovery, he says. “The combination of furlough and unemployment insurance programs should support households through the end of 2021,” Jeffrey says.