Stock markets in the US and Europe fell sharply oas investors focused on signs that rich countries’ efforts to contain the coronavirus pandemic were foundering.
In Europe, the Stoxx 600 index lost 1.8% after heavy falls in German blue-chip stocks. In the US the Dow Jones industrial average closed 2.3% down at 27685.38, while the benchmark S&P 500 fell 1.9% to 3400.97.
Countries across Europe have reported increasing numbers of confirmed coronavirus cases, and governments have reimposed restrictions that are expected to limit the economic recovery from the first wave of the pandemic.
As well as new restrictions in the UK and a new six-month state of emergency in Spain, France reported a record increase in the number of confirmed cases over the weekend, while the seven-day average of new cases in the US also rose to a record.
The share prices of companies in sectors most sensitive to pandemic travel restrictions fell heavily on Monday.
Aviation and aerospace shares dragged down the FTSE 100, which lost 1.2%. The biggest fall was sustained by British Airways owner IAG, which lost 7.6%. Rolls-Royce, the engineering company whose earnings are closely tied to the number of hours its jet engines are in the air, lost 7.2%.
Hotel and holiday companies also suffered. Intercontinental Hotels Group fell by 4%, while Carnival, the cruise company whose UK-listed shares were relegated to the mid-cap FTSE 250 index by the pandemic, lost 10% of its value. Tui, the Anglo-German travel company, fell by 8.9%.
In Germany the benchmark Dax equity index dropped 3.7%. The worst-hit company was SAP, the business software company, which fell by 23% after warning that it would take longer than previously expected for it to recover from the pandemic.
Bert Colijn, a senior Eurozone economist at ING, a Dutch investment bank, said that data on public transport usage gave a “strong indication that the recovery is being interrupted by the second wave” of the virus.
“The question now is whether the economy’s going into reverse on the back of the new restrictions aimed at tackling the virus,” he wrote in a note to clients. “As those measures become more strict, that prospect is looking increasingly likely.”
On top of the pandemic, investors are nervously awaiting the outcome of the US presidential election on 3 November, as well as the result of talks between the Democratic and Republican parties which could result in a new round of fiscal stimulus aimed at helping US consumers.
The fierce political division between the two sides has given analysts little hope that a stimulus package will be passed quickly. However, market observers have suggested that investors are betting that a stimulus bill will eventually be passed, pushing down the price of longer-term US government debt.
“Fears about Covid-19 resurgence and the continued failure to reach a fiscal policy package between Republicans and Democrats have investors unnerved,” said Michael Arone, chief investment strategist at State Street Global Advisors in Boston.
Market bets on US stock market derivatives indicated that investors expected further volatility over the next month. The Vix index – known as Wall Street’s “fear index” – rose from a reading of 29.38 to a high of 33.42 on Monday, its highest level since early September.
“During the summer months, there was a sense of optimism in the markets as economies were being reopened and there was a view that governments had a handle on the crisis,” said David Madden, a market analyst at CMC Markets, a spread betting company.
“Now there is a feeling that countries are struggling to contain the health emergency, and the announcement of curfews and localised lockdowns adds to the view that things are going to get worse before they get better.”
The prospect of prolonged weaker economic activity also dented oil prices. The price of futures for Brent crude oil, the North Sea benchmark, lost 3.2% to fall to $40.44 (£31) per barrel. In the US, West Texas Intermediate crude futures also fell by 3.2%, to $38.57 per barrel.