Wall Street falls as Fed action hits bank stocks, virus cases surge


Futures tracking the S&P 500 were largely flat on Friday as investors digested a surprise quarterly loss for Nike and the Federal Reserve’s move to limit shareholder payouts by banks amid a surge in new coronavirus cases.

The spread of the coronavirus disease (COVID-19) in New York

FILE PHOTO: Flags hang on the outside of the New York Stock Exchange as the building opens for the first time since March while the outbreak of the coronavirus disease (COVID-19) continues in the Manhattan borough of New York, U.S., May 26, 2020. REUTERS/Lucas Jackson

REUTERS: Wall Street’s major indexes dropped on Friday as the United States set a new record for a one-day increase in coronavirus cases and bank stocks tumbled after the Federal Reserve decided to cap shareholder payouts.

The S&P 500 banks sub-index declined 5per cent after the Fed limited dividend payments and barred share repurchases until at least the fourth quarter following its annual stress test.

In the previous session, banks stocks had powered Wall Street’s main indexes higher, helping them offset investor fears due to rising virus infections in several U.S. states, including Texas, Oregon and Utah.

Cases rose across the United States by at least 39,818 on Thursday. Texas, which has been at the forefront of easing restrictions, paused its reopening plans after the state recorded its one of the biggest jumps in new infections.

“States are rethinking the reopening and that’s going to affect a lot of businesses,” said David Yepez, lead equity analyst and portfolio manager at Exencial Wealth Advisors in Oklahoma.

“We’re not going to test those March lows but there could be a correction, because we got a little bit too high.”

The uptick in cases has also threatened to derail a strong rally for Wall Street that brought the S&P 500 within 10.7per cent of its February all-time high on the back of record government stimulus measures.

The benchmark index was also testing its the 200-day moving average, an indicator of long-term momentum. If it closes below the key level, it could signal further losses.

At 11:02 a.m. ET, the Dow Jones Industrial Average was down 532.55 points, or 2.07per cent, at 25,213.05, the S&P 500 was down 54.56 points, or 1.77per cent, at 3,029.20. The Nasdaq Composite was down 194.40 points, or 1.94per cent, at 9,822.61.

Nike Inc dropped 5.8per cent as the footwear maker posted reported a surprise quarterly loss hurt by store closures due to the pandemic.

Facebook Inc shed 6.4per cent after Verizon Communications Inc joined an advertising boycott that called out the social media giant for not doing enough to stop hate speech on its platforms.

Gap Inc surged 31.4per cent after it entered into a 10-year deal with rapper and fashion designer Kanye West to create a Yeezy line of clothing.

Data showed U.S. consumer spending rebounded by the most on record in May, but the gains are not likely to be sustainable, as income declined and expected to fall further as millions lose their unemployment checks starting next month.

Friday also marks the reconstitution of the FTSE Russell indexes, including large cap Russell 1000 and small cap Russell 2000 , that often marks one of the biggest trading volume days of the year.

Declining issues outnumbered advancers for a 6.40-to-1 ratio on the NYSE and for a 5.92-to-1 ratio on the Nasdaq.

The S&P index recorded five new 52-week highs and no new low, while the Nasdaq recorded 39 new highs and 13 new lows.

(Reporting by Devik Jain and Medha Singh in Bengaluru; Editing by Arun Koyyur)



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