Wall Street fell for a second straight day on Tuesday as a global spike in coronavirus cases hit travel-related shares and investors had second thoughts about big U.S. banks’ apparently stellar earnings last week. In Canada, the TSX also lost ground, with both major railways suffering notable declines after CN Rail launched a US$30-billion rival bid for Kansas City Southern, topping CP Rail’s bid.
Kansas City Southern surged 15.25% on the prospect of a bidding war after Canadian National Railway offered about $5 billion more than the earlier proposal from Canadian Pacific Railway. CN Rail closed down 6.28% in Toronto, and CP Rail 2.23%.
CP is expected to counter with a higher offer, said Christian Wetherbee, an analyst at Citi Group in New York. “While we thought CP’s initial bid was elevated … we believe it’s likely that CP remains engaged and may try to come back with a higher bid,” Mr. Wetherbee said. “This clearly would stretch valuation, but could be justified by the long-term growth potential of the combined entity.”
After markets closed, CP issued a statement saying the CN proposal is “illusory and inferior” and creates adverse competitive impacts. It added the proposal is complex and will likely fail.
The pressure on railway stocks dragged down the TSX industrials sector, which fell just over 2%. But energy stocks overall suffered even more losses, with a decline of 3.96%.
Crude futures settled lower on Tuesday, pulling back from one-month highs, on fears that India, the world’s third-biggest oil importer, may impose restrictions as coronavirus infections and deaths surge to record highs.
Oil prices have risen steadily this year on anticipation that demand would recover, but while the United States and China are rebounding, numerous other countries are not.
“Unless major progress is seen beyond the key industrialized nations such as the U.S., the pandemic factor could require some downward adjustments in global oil demand expectations for this year,” said Jim Ritterbusch, president of Ritterbusch and Associates in Galena, Illinois.
India, the world’s second most populous country and currently the hardest hit by COVID-19, reported its worst daily death toll on Tuesday, with large parts of the country now under lockdown amid a fast-rising second surge of contagion.
India’s Prime Minister Narendra Modi urged citizens to take precautions to halt the spread of COVID-19, but stopped short of imposing lockdowns.
Restrictions continue to hamper travel worldwide. Hong Kong will suspend flights from India, Pakistan and the Philippines from April 20 for two weeks.
Brent crude settled down 48 cents, or 0.7%, at $66.57 a barrel. During the session it reached its highest since March 18 at $68.08. U.S. West Texas Intermediate (WTI) crude fell 94 cents, or 1.5%, to $62.44.
In the U.S., Boeing Co slid 4.1% on the unexpected departure of its finance chief, the latest shock to hit the planemaker as it fights to recover from the pandemic and 737 MAX crisis.
Investors piled into defensive sectors considered relatively safe during times of economic uncertainty, lifting real estate, utilities, consumer staples and healthcare as financials and energy shares fell hard.
Shares of airline operators and cruiseliners including JetBlue Airways, American Airlines, Norwegian Cruise Line and Carnival Corp, which were hammered last year during lockdowns but have climbed recently on the reopening hopes, fell more than 4%.
In Toronto, Air Canada lost 3.69%.
Some of the recent optimism about the leisure industry has waned as the reopening might take a bit longer than initially thought, said Michael James, managing director of equity trading at Wedbush Securities in Los Angeles.
“We’re not out of the woods yet when it comes to the COVID virus and getting to where global economies are reopening,” he said. “Some of that enthusiasm has diminished.”
A leading epidemiologist at the World Health Organization said on Monday the latest rise in COVID-19 infections worldwide reflected increases among all age groups.
Wall Street scaled record highs last week as investors bet on stocks such as industrials and miners that are seen as benefiting from the economic rebound, while highly valued technology stocks regained favor after a retreat in bond yields.
The Dow Jones Industrial Average fell 0.75% to 33,821.3. The S&P 500 shed 0.68% to 4,134.94 and the Nasdaq Composite dropped 0.92% to 13,786.27.
It was the first back-to-back declines for the S&P since the end of March.
Volume on U.S. exchanges was 10.21 billion shares, compared with the 10.59 billion average for the full session over the last 20 trading days.
The CBOE volatility index, known as Wall Street’s fear gauge, climbed above 19 points for the first time since March 31, before closing at 18.71.
JPMorgan Chase & Co, Bank of America Corp, Citigroup Inc and Wells Fargo & Co led financials lower as analysts reassessed their earnings reports, said Dick Bove, senior research analyst at Odeon Capital Group.
Accounting changes on how to report loan reserves skewered numbers when compared to a year ago, he said.
“People made the assumption this was a gangbusters quarter for the banking industry when that’s far from the truth,” Bove said, adding second-half profits are expected to be very strong.
United Airlines Holdings Inc was the largest decliner, falling 8.5%, on the S&P 500 after reporting a bigger-than-expected adjusted net loss to push the S&P 1500 airline index down 4.6%.
Shares of video-streaming service provider Netflix Inc, which thrived during last year’s lockdowns, fell 0.9% ahead of its results due after the closing bell.
Netflix tumbled about 10% in after-hours trade following news that the company added fewer-than-expected paid subscribers in the first quarter, weighed down by a lighter content slate in the first half of 2021 due to COVID-19 production delays.
International Business Machines Corp rose 3.8% after recording the biggest increase in quarterly sales in more than two years.
Analysts expect first-quarter earnings from S&P 500 firms to jump 31.5% from a year earlier, according to Refinitiv IBES data.
Declining issues outnumbered advancing ones on the NYSE by a 2.71-to-1 ratio; on Nasdaq, a 3.18-to-1 ratio favored decliners.
The S&P 500 posted 61 new 52-week highs and no new lows; the Nasdaq Composite recorded 47 new highs and 116 new lows.
Read more: Stocks that saw action on Tuesday - and why
Reuters, Globe staff
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