Stocks futures fell in overnight trading on Thursday as rising new coronavirus cases cast doubt on a swift economic recovery.
Also weighing on sentiment was a disagreement between the Treasury Department and the Federal Reserve over the continuation of funding for some of the emergency programs implemented during the recession.
Futures on the Dow Jones Industrial Average dropped 220 points, implying a loss of more than 200 points at Friday’s open. S&P 500 futures slid 0.7% and Nasdaq 100 futures dipped 0.3%.
The market’s rally to records slowed down in recent days as more immediate concerns about the worsening pandemic overshadowed optimism toward a viable vaccine.
The U.S. seven-day average of daily new Covid-19 infections now stands at 161,165, according to a CNBC analysis of John Hopkins data, 26% higher than a week ago. Many states have rolled back reopening plans and implemented fresh restrictions to curb the spread.
California governor Gavin Newsom on Thursday issued a “limited Stay at Home Order” on a majority of the state’s residents, requiring nonessential work and gatherings to cease between 10 p.m. and 5 a.m. Meanwhile, the Centers for Disease Control and Prevention advised Americans against traveling for Thanksgiving.
President-elect Joe Biden said Thursday he will not order a national shutdown as the country heads into a tough holiday season, calling the measure “counter-productive.”
Meanwhile, Treasury Secretary Steven Mnuchin is seeking to end a handful of the Fed facilities that bought corporate bonds as well as the Main Street Lending Program targeted towards small- and medium-sized businesses. The move has drawn pushback from the central bank, which said the programs continue to serve an important role to support the vulnerable economy.
“Mnuchin’s move will tighten financial conditions and removes a safety net for markets at the wrong moment,” Krishna Guha, Evercore ISI vice chairman and head of global policy and central bank strategy, said in a note on Thursday.
Bond king Jeffrey Gundlach said Mnuchin’s request would shut down the corporate credit programs that “propped up” markets in the spring. The DoubleLine Capital CEO raised the question if the markets can hold up without the Fed’s support, saying “the training wheels are coming off.”
The overnight action followed slight gains on Wall Street led by tech shares on Thursday. The Dow eked out a 40-point gain, while the S&P 500 and the Nasdaq rose 0.4% and 0.9%, respectively. It marked the first positive day in three for the major averages.
The 30-stock Dow and the S&P 500 both reached record closing highs on Monday following promising vaccine news.
“The market is churning a bit as investors digest the recent ramp higher, grapple with a worsening in the Covid-19 spread,” Tony Dwyer, Canaccord Genuity’s chief market strategist, said in a note.
Investors also digested signs that lawmakers could resume talks over a new Covid-19 relief bill amid the worsening pandemic. Sen. Chuck Schumer, D-N.Y., said Thursday that Senate Majority Leader Mitch McConnell, R-Ky., has agreed to restart negotiations.
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