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Dow drops 600 points as IMF cuts outlook for the global economy



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USA TODAY

U.S. stocks came under pressure Wednesday on worries over the prospects of a quick economic recovery as virus cases jumped and the International Monetary Fund projected the global recession will be worse than initially expected. 

The Dow Jones industrial average shed 600 points, giving back all of its gains for the week. The Standard & Poor’s 500 fell 2.3% following two consecutive days of gains. The technology-heavy Nasdaq Composite slid 2%, threatening to snap an eight-day winning streak. 

The International Monetary Fund cut its economic forecasts further Wednesday as global supply chains attempt to combat social-distancing measures from the coronavirus pandemic in the second half of the year. The IMF estimates a contraction of 4.9% in global GDP in 2020, down from 3% in April. That would mark the worst annual contraction since immediately after World War II.

Investors were skittish as new virus cases in the U.S. have surged to their highest level in two months after trending down for more than six weeks. While early hot spots like New York and New Jersey have seen cases steadily decrease, the virus has been hitting the south and west. Several states on Tuesday set single-day records, including Arizona, California, Mississippi, Nevada and Texas.

“Investors fear the worst of the pandemic isn’t behind us yet,” says Charles Lemonides, founder and portfolio manager of ValueWorks.

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Investors are closely watching economic data for signs of recovery from the worst global downturn since the Great Depression of the 1930s. Further updates on the U.S. economy are expected toward the end of this week, when the government will issue data on weekly unemployment aid applications, consumer spending and durable goods orders.

On Thursday, economists estimate between 1.3 million to 1.4 million people filed initial applications for unemployment insurance last week. That would mark a mind-boggling 47 million Americans filed first time unemployment claims in just 14 weeks.

Investors have recently been focused on the prospects for an economic recovery as more businesses reopen after being shut down due to the coronavirus pandemic. Encouraging economic data, including retail sales and hiring, have helped stoke optimism that the recession will be relatively short-lived.

To be sure, the market has continued to climb in recent weeks, despite bouts of volatility, even as rising coronvairus cases in the U.S. and other countries cloud hopesfor an economic turnaround. The near-term outlook for financial markets depend on several variables including the spread of the virus and the development of a vaccine, analysts say. 

“The global economic growth projections released by the IMF are certainly stark, but should be ingested with the caveat that the outlook is radically uncertain and it is very difficult for anyone to paint an accurate picture,” Cormac Nevin, investment analyst at Beaufort Investment, said in a note.

While economic data is pointing to a recovery from the spring lockdowns that are being eased in many countries, the rise in new contagions is raising concerns that limits might have to be reimposed in some cases on business activity and public life.

Analysts are warning that, despite recent market rallies, there is little reassurance infections won’t keep spreading, given the growing numbers in some parts of the U.S., Brazil and Asia.

Worldwide, more than 9.2 million people are confirmed to have contracted the virus, including more than 477,000 who have died, according to a tally by Johns Hopkins University. It is thought to understate the actual numbers because of limits to testing and numerous asymptomatic cases.

Technology companies, which have been leading the market higher as it bounced back from a plunge in March, accounted for the biggest slice of the market’s pullback. Financial, health care, communication services and industrial sector stocks also took heavy losses. Energy stocks dropped as the price of oil fell sharply.

On Wednesday, shares of airlines, cruise liners and retailers that are tied to the economy reopening fell. United Airlines, Delta and Southwest each slid at least 2%. Carnival and Royal Caribbean both dropped more than 2%. Retailers Target and Gap fell at least 1% apiece.

The yield on the 10-year Treasury edged up to 0.72% Wednesday, from 0.71% Tuesday. 

In energy trading, benchmark U.S. crude oil slipped 77 cents to $39.60 a barrel in electronic trading on the New York Mercantile Exchange. It fell 9 cents to $40.37 a barrel Tuesday. Brent crude, the international standard, fell 64 cents to $42.09.

In Europe, France’s CAC 40 slid 1.6%, while Germany’s DAX dropped 2%. Britain’s FTSE 100 was down 2.2%. Earlier, in Asia, Japan’s benchmark Nikkei 225 inched down less than 0.1%. Hong Kong’s Hang Seng slipped 0.5%, while the Shanghai Composite added 0.3%.

Contributing: The Associated Press

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