World stock markets went into a dive Wednesday as soaring COVID-19 cases and a resurgence in lockdown measures sent investors running for safer ground, just days before a U.S. presidential election that promises more volatility to come.
Canada’s benchmark stock index, along with the S&P 500 and the Dow Jones industrial average, suffered their worst daily percentage decline since June 11. Oil plunged more than 5 per cent, and even gold shed value. Traders diverted money flows from riskier assets into the perceived safety of the U.S. dollar, which in turn pressured commodities that are priced in the currency.
Twelve U.S. states set records for hospitalized COVID-19 patients on Tuesday, while Germany and France announced plans to shut large swathes of public life for a month as the pandemic surged across Europe. Benchmark stock indexes in the two European nations fell 4.17 per cent and 3.37 per cent, respectively.
“There is a feeling in the markets that governments are not in control of the pandemic and that is why traders are running scared,” David Madden, market analyst with CMC Markets UK, said in a note. “The number of new covid-19 cases is rising at an alarming rate and the increase in the hospitalization rate is a worry too.”
With just six days to the election, Wall Street’s fear gauge, known widely as the VIX, spiked to its highest level since June 15. Concerns that a winner might not be declared the night of Nov. 3 election, and Washington’s failure to reach a deal on new fiscal stimulus before then, also spurred the wide sell-off. On Tuesday, U.S. President Donald Trump acknowledged that a coronavirus economic relief package was unlikely until after next week’s election.
Democratic challenger Joe Biden leads Mr. Trump nationally by 10 percentage points, according to Reuters/Ipsos polling, but the competition is tighter in swing states, which will decide the victor.
Investors are worried about various potential outcomes: that the election may be contested; a “blue wave” gives Biden a victory and his Democrats control of Congress; or that Trump gets re-elected, said Chris Zaccarelli, chief investment officer at Independent Advisor Alliance in Charlotte, North Carolina.
“As people run through the likely scenarios of what could happen with the election, there’s no short-term good answer,” he said.
Shares of hotels, airlines and other companies sensitive to COVID-19-related turmoil sank on Wednesday, with Air Canada losing 3.78 per cent. The death toll in Canada from COVID-19 reached 10,000 people on Tuesday and has accelerated over the past month.
Losses were broad-based in both Canada and the U.S., and technology stocks offered no shelter, falling 4.33 per cent and weighing the most on the S&P 500. The Big Tech companies - Apple, Alphabet and Facebook - which are due to report results on Thursday, all fell 4.6 per cent or more.
Meanwhile, markets are also absorbing one of the busiest weeks for third-quarter earnings reports. Of the 206 S&P 500 companies that have reported third-quarter earnings so far, about 83% have topped expectations, according to Refinitiv data. But earnings on average are expected to fall 14.8% from a year earlier.
The Dow Jones Industrial Average fell 943.24 points, or 3.43 per cent, to 26,519.95; the S&P 500 lost 119.65 points, or 3.53 per cent, to 3,271.03; and the Nasdaq Composite dropped 426.48 points, or 3.73 per cent, to 11,004.87.
The S&P/TSX Composite Index fell 434.37 points, or 2.71 per cent, to 15,586.57 - its lowest level since early July.
The Cboe Volatility Index surged to just above 40, and has risen nearly 13 points this week.
Some investors have been preparing for bigger market gyrations for weeks. Assets under management in exchange-traded products that investors use to guard against a drop in U.S. stocks have steadily grown since mid-September.
Over the last month, the combined assets of the ProShares Ultra VIX Short-Term Futures ETF and the Barclays iPath Series B S&P 500 VIX Short-Term Futures ETN have grown to $2.85 billion, a 20 per cent gain, according to data from YCharts.
VIX futures, which have long reflected expectations for higher volatility toward year-end, have also risen. November futures, which capture the weeks following the election, were trading above 35 on Wednesday.
Even so, the VIX itself is trading at a higher level than the futures, an indication that immediate concerns about the coronavirus have dwarfed worries further out on the calendar.
Some investors, in fact, are readying for a somewhat calmer market at year-end and in early 2021. Since the beginning of the month, trading volume in VIX puts - options used to position for declines in the index - has outpaced that for VIX calls, used to protect against outsized market moves.
“Surprises are the thing that really get volatility going,” said Christopher Murphy, co-head of derivatives strategy at Susquehanna Financial Group. “This next wave of coronavirus seems to have caught the market off guard a bit.”
With reports from Reuters
Read more: Stocks that saw action on Wednesday - and why
With reports from Reuters
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Darcy Keith