Dow closes 300 points lower as Caterpillar leads afternoon slide

U.S. stocks fell on Tuesday in an afternoon plunge led by stocks of companies that have the most to lose in the event of a setback in the global economic reopening from the Covid-19 pandemic.

The S&P 500 fell 0.8% to 3,910.52, under pressure from industrials and materials. The Dow Jones Industrial Average fell 308.05 points, or 0.9%, to 32,423.15 as Caterpillar slipped 3.4%. The tech-heavy Nasdaq Composite slid 1.1% to 13,227.70. The small-cap Russell 2000 fell 3.6% to 2,185.69 for its worst day since June.

Travel and retail stocks sold at the same pace amid new Covid restrictions around the world. Shares of Carnival and Norwegian cruise lines fell more than 7% each. American Airlines and United Airlines also fell more than 6% each. Brick-and-mortar retailer Gap slipped nearly 8%.

The World Health Organization has said most parts of the world are seeing an increase in new Covid cases as highly contagious variants continue to spread. Germany is extending its lockdown until April 18, while nearly a third of France entered a month-long shutdown on Saturday. Oil prices have fallen more than 6% amid the threat of a third wave of global infections.

“Despite the vast improvements, the third pandemic wave has left much of the population vulnerable both medically and economically,” said Brad McMillan, chief investment officer at Commonwealth Financial Network. “This damage will take time to heal. Vaccinations will bring this spread under control, but it will take time.”

The United States administers about 2.5 million Covid vaccines every day. However, the number of new cases is rising in 21 states as governors ease restrictions on businesses.

On Tuesday, a US health agency expressed concern that AstraZeneca may have included outdated information in trial results for its Covid-19 vaccine.

One year bull market anniversary

The rally in equities paused as the new bull market officially turned one year old. Tuesday marks the one-year anniversary of the pandemic’s low after the unprecedented health crisis sent the S&P 500 plummeting 30% in just 22 days in the fastest-ever selloff in the bear market.

Stocks have rebounded strongly from the Covid-induced low, with the S&P 500 soaring about 80% since bottoming out a year ago, marking the best start to a new bull market on record. The Nasdaq Composite rose more than 90%, while the Dow jumped around 75% over the same period.

“The stock market rally factored in the expectation of an economic rebound and I think that expectation will materialize,” said Craig Fehr, investment strategist at Edward Jones. “We will continue to see gains in the stock markets from here, but I don’t think they will be as strong as we have seen over the past 12 months. And I think the path will be a bit bumpier along the way.”

History shows that new bull markets like this usually carry the strong rally into the second year, although more moderate gains should be expected. Wall Street’s year-end consensus target for the S&P 500 stands at 4,099, up 4% from Monday’s close, according to the CNBC Market Strategist Survey, which rounds predictions from the top 15 strategists.

“After an 80% rebound in stock prices from the March 2020 lows, it’s fair to suggest that much of the good news is priced in and the upside potential becomes more limited from here.” , Tobias Levkovich, chief U.S. equity strategist at Citi, said in a note.

Asset prices rising

Federal Reserve Chairman Jerome Powell and Treasury Secretary Janet Yellen made their first joint appearance on Tuesday before the US House of Representatives Financial Services Committee. The duo acknowledged the prices of the richly valued assets in the markets, but said they were not worried about financial stability.

“I would say that even though asset valuations are high by historical measures, it is also believed that with vaccinations taking place at a rapid pace, the economy will be able to get back on track,” Yellen said during of testimony. “I think in an environment of high asset prices, what’s important for regulators is to make sure the financial sector is resilient and to make sure markets are functioning well.”

Meanwhile, Powell stressed that when it comes time to recall its multi-billion dollar asset purchases, the central bank will communicate cautiously and act slowly.

“In terms of the future, we said we would begin to scale back our asset purchases when we see substantial further progress toward our goals,” Powell said. “When that happens, we will communicate well in advance of the actual reduction time.”

Major indexes ended higher on Monday as investors bought the decline in growth stocks with the pullback in the 10-year Treasury yield. The benchmark rate fell another 6 basis points to 1.62% on Tuesday.

– CNBC’s Tom Franck contributed reporting.

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