Wall Street’s main indexes fell on Wednesday after data showing a cooling of U.S. business activity and the stalemate in Congress over more fiscal stimulus heightened fears of a choppy economic recovery from the pandemic-driven recession.
Ten of the 11 major S&P sectors were down, with energy .SPNY – already the worst performing sector this year – leading declines.
Hopes of a strong recovery and historic stimulus fueled the U.S. stock rally following the coronavirus-driven crash in March, but doubts over the next relief bill and a sell-off in heavyweight technology-related stocks have weighed on sentiment this month.
The economy is leveling off at about 80% of activity before the pandemic and won’t get back to normal until a vaccine is in place, said Jason Pride, chief investment officer of private wealth at Glenmede in Philadelphia.
“We’re at that phase where it’s harder to get that next bit of the recovery, that next bit of the reopening in place,” Pride said. “We’re still doing it, but the progress is way slower than it was in the first three months of the reopening.”
Investors are struggling to understand where to invest with mega-cap tech stocks overvalued, but the deep-value stocks represent maturing industries, such as energy and brick-an- mortar banks, he said.
“We’re spending more of our time in that sweet spot in the middle to get away from the extremes of growth,” Pride said.
Federal Reserve Chair Jerome Powell said on Wednesday that the central bank was not planning any “major” changes to its Main Street Lending Program, while saying that both the Fed and Congress need to “stay with it” in working to bolster the economic recovery.
“The longer we go without more stimulus, the harder it will be to sustain the gains in the economy,” said Willie Delwiche, investment strategist at Baird in Milwaukee.
Data from IHS Markit showed gains at factories were offset by a slowdown in the broader services sector in September, suggesting a loss of momentum in the economy at a time when concerns are rising about a potential surge in COVID-19 cases heading into the colder months.
Meanwhile, the U.S. Justice Department unveiled a legislative proposal, which would need congressional approval, that seeks to reform a legal immunity for internet companies and follows through on President Donald Trump’s bid from earlier this year to crack down on tech giants.
Wall Street favorites including Facebook Inc FB.O, Apple Inc AAPL.O, Google-parent Alphabet Inc GOOGL.L and Amazon.com Inc AMZN.O, which have borne the brunt of recent losses, were down between 1.5% and 3.4% in afternoon trading.
Tesla Inc TSLA.O, another recent Wall Street darling, tumbled 9.3% after Chief Executive Elon Musk failed to impress with his promise to cut electric vehicle costs at the company’s much-awaited “Battery Day” event on Tuesday.
At 2:30 p.m. ET, the Dow Jones Industrial Average .DJI fell 362.01 points, or 1.33%, to 26,926.17. The S&P 500 .SPX lost 54.65 points, or 1.65%, to 3,260.92, and the Nasdaq Composite .IXIC dropped 246.63 points, or 2.25%, to 10,717.01.
An index of value-linked stocks .IVX such as industrials outperformed growth-oriented sectors .IGX, suggesting “investors (are) getting comfortable with the belief that the turnaround story is under way for the economy,” said Lindsey Bell, chief investment strategist at Ally Invest in Charlotte, North Carolina.
Nike Inc NKE.N surged 8.8% to a record high as its digital sales, especially in North America, helped offset a fall in sales at traditional brick-and-mortar stores.
Declining issues outnumbered advancing ones on the NYSE by a 5.11-to-1 ratio; on Nasdaq, a 4.08-to-1 ratio favored decliners.