Stocks fell sharply on Monday ahead of a key deadline set by House Speaker Nancy Pelosi to reach a deal on new coronavirus stimulus before the election while Covid-19 cases rise.
The Dow Jones Industrial Average closed 410.89 points lower, or 1.4%, at 28,195.42. Earlier in the day, the 30-stock average was up more than 100 points. The S&P 500 dropped 1.6% to close at 3,426.92 and the Nasdaq Composite pulled back 1.7% to 11,478.88.
Both the Dow and the S&P 500 had their worst day since Sept. 23. The Nasdaq posted its biggest one-day loss since Oct. 2. It also logged its first five-day losing streak since August 2019.
Shares of Big Tech contributed to the decline. Alphabet, Microsoft, Apple and Amazon were all down at least 2%. Facebook dipped 1.7%. Energy and tech were the worst-performing S&P 500 sectors, dropping 2.1% and 1.9%, respectively.
Pelosi, D-Calif., gave the Trump administration on Sunday 48 hours to reach an aid deal before the Nov. 3 election. Pelosi and Treasury Secretary Steven Mnuchin were also slated to speak Monday afternoon.
However, The Washington Post reported, citing sources, that a deal between Pelosi and the administration was not “sounding imminent.” The news sent the major averages to their lows of the day.
“We’re going to continue to be very sensitive to any talk that has anything to do with stimulus,” Scott Wren, senior global market strategist at the Wells Fargo Investment Institute, told CNBC’s “Closing Bell.” “The way we’ve rallied [off the March lows] has been by expecting better cyclical news in terms of a vaccine, the Federal Reserve being very easy and [fiscal] stimulus.”
“I think all three of those are very important and we’ve got one leg that’s been pulled out or, at least, it’s wobbly,” Wren added.
Democrats and Republicans have tried for weeks to move forward on a new aid package. But differences over the how much stimulus is needed and how broad the bill should be have complicated the negotiations.
Tom Block, Washington policy strategist at Fundstrat Global Advisors, thinks it is possible that a deal between the Trump administration and Pelosi can be reached.
“Both sides seem to have an incentive to get a deal done,” Block said in a note to clients. He also added that “the dynamics of the lame duck could be poisonous if Trump loses, or Republicans lose control of the Senate. The safer course of action seems to be to pass a bill now, and if there is a blue wave more stimulus early in 2021.”
Global coronavirus cases hit 40 million on Monday, which also put a damper on market sentiment.
A CNBC analysis of Johns Hopkins University data showed Covid-19 cases were growing by 5% or more in 38 states as of Friday. Nationwide, the daily case average has risen by more than 16% on a week-over-week basis to nearly 55,000. New coronavirus infections in Europe are rising by about 97,000 per day, up 44% from the prior week.
Stocks were coming off a week of choppy trading action. The S&P 500 and the Dow fell for three straight days last week before closing slightly higher on Friday.
“The many cross-currents we have been fretting over in recent weeks remain omnipresent,” said Sherif Hamid, a strategist at Jefferies, in a note. “The US elections are close at hand, fiscal stimulus remains a key near-term potential catalyst, and developments on the virus front remain critical to the longer-term outlook.”
“A lot is very likely to happen over the next several weeks, and the broader macro picture could thus change pretty massively depending on developments along all of those fronts,” Hamid added.