Stock ETFs Sink On Stress Tests And Surging Coronavirus Cases

After closing positive Thursday, stocks and index ETFs are back at Thursday’s lows on early Friday afternoon trading, amid concerns over the spiking tally of coronavirus cases in the U.S. and its impact on the economic recovery.

The Dow Jones Industrial Average dropped almost 600 points, or about 2.27%, while S&P 500 and Nasdaq Composite fell another 1.8% and 1.7%, respectively, targeting the major indexes for losses on the week.

 Stock index ETFs are declining along with the underlying benchmarks. The SPDR Dow Jones Industrial Average ETF (DIA), SPDR S&P 500 ETF Trust (SPY), and Invesco QQQ Trust (QQQ) are trading all in the red Friday, down 2%, 1.6%, and 1.1% respectively.

A number of states are showing a dramatic surge in coronavirus cases, necessitating closures of bars, and the rollback of reopening plans, spooking investors and driving markets lower, as summer was believed to be a reprieve from the virus due to its supposed intolerance for heat.

The Texas Governor Abbott said the state will reverse some of its reopening measures as coronavirus cases and hospitalizations continue to rise. “At this time, it is clear that the rise in cases is largely driven by certain types of activities, including Texans congregating in bars,” Abbott said in a release.

Florida said it would suspend “on premises consumption” of alcohol at bars in the state. In Arizona, the count of cases ramped up by 5.4%, beating a seven-day average of 2.9%.

“Coronavirus cases are spiking and reopenings are being delayed, which at a minimum will impact earnings,” said Tom Essaye, founder of The Sevens Report. “The resurgence in coronavirus cases is raising concerns that the rebound may be short-lived as voluntary or potentially more government-mandated economic shutdowns are becoming increasingly likely.”

Most stock sectors are red on Friday, with shares of companies that would gain from an economic reopening showing substantial losses. United Airlines, American and Delta all dropped more than 4%, while cruise operator Norwegian Cruise line sank 4%. The US Global JETS ETF (JETS), which contains many of the airlines is down over 4% and dropping Friday as well.

Banking stocks are slipping as well on Friday after Federal Reserve’s annual stress test of the major banks showed some banks could get close to minimum capital levels in certain situations related to the coronavirus pandemic, potentially requiring the banks to cut share repurchase programs and cap dividend payments at current levels for the third quarter.

“While I expect banks will continue to manage their capital actions and liquidity risk prudently, and in support of the real economy, there is material uncertainty about the trajectory for the economic recovery,” Fed Vice Chair Randall Quarles said in a statement.

The iShares Dow Jones US Reg Banks Ind. ETF (IAT) is down almost 6% amid the news.

For more market trends, visit  ETF Trends.