(Bloomberg) — Stocks slumped and Treasuries rallied as a resurgence in coronavirus cases added to concern about tougher restrictions that could slow down the economic recovery without further stimulus.

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The S&P 500 extended losses as the early epicenter New York City is preparing for the possibility of closing its schools again amid a surge in infections. Meanwhile, Bloomberg News reported the Trump administration is stepping back from talks on a new stimulus package and leaving it up to Congress to revive negotiations with House Speaker Nancy Pelosi, according to people familiar with the situation. The U.S. economy could be in for a challenging few months as Covid-19 spreads — despite recent positive news about vaccine development, Federal Reserve Chairman Jerome Powell said.

Read: JPMorgan Asset Cuts 60/40 Outlook, Backs Hunt for Alternatives

The U.S. recorded 152,255 new infections on Wednesday as the virus spreads across the nation, with fatalities reaching their highest point since May, and hospitalizations climbing by more than 10% in five days across six states. Covid won’t be a “pandemic a lot longer” thanks to rapid progress in vaccine development, according to Anthony Fauci, the top U.S. infectious disease official. The coronavirus could nonetheless remain endemic for a long time, he said.

“The blame seems to be going to the increased cases of Covid-19 in the U.S. and around the world, and the proposed lockdowns that are going along with it,” said Matt Maley, chief market strategist at Miller Tabak + Co, referring to the drop in equities. “This makes total sense, but we also need to recognize that this is not new news at all. Therefore, we think the real reason for the weakness is the simple fact that the stock market had become overbought on a very short-term basis.”

JPMorgan Asset Management is cutting its projections for cross-asset returns over the next decade and signaling more pain for 60/40 allocations that have long formed the bedrock of traditional portfolios. Strategists at the firm reduced their estimate for global equities by 1.4 percentage point to 5.1% a year in the next decade, citing elevated valuations in U.S. large caps. They forecast negative inflation-adjusted returns across almost all sovereign bonds over the next 10 to 15 years, with yields remaining low even after rates normalize.



chart: Nasdaq-100 surge relative to Dow average falters near dot-com era record


© Bloomberg
Nasdaq-100 surge relative to Dow average falters near dot-com era record

U.S. stocks are likely to fall short in their push to break a dot-com era record, according to Chris Kimble, chief executive officer of Kimble Charting Solutions. Kimble analyzed the ratio between the Nasdaq 100 and the Dow Jones Industrial Average in a blot post this week. The ratio climbed as much as 40% this year through Sept. 1, when it reached the highest level since March 2000, according to data compiled by Bloomberg. On Monday and Tuesday, the ratio fell by a combined 7.4%. The two-day drop was the steepest since May 2001.

On the economic front, applications for U.S. state unemployment benefits fell by the most in five weeks — signaling the gradual recovery in the labor market is continuing. A measure of prices paid by American consumers was unchanged in October, missing forecasts that called for a modest gain and indicating scant inflation as the pandemic drags on.

These are some of the main moves in markets:

Stocks

The S&P 500 fell 1% as of 12:55 p.m. New York time.The Stoxx Europe 600 Index sank 0.8%.The MSCI Asia Pacific Index climbed 0.4%.

Currencies

The Bloomberg Dollar Spot Index was little changed.The euro increased 0.3% to $1.1812.The Japanese yen strengthened 0.3% to 105.12 per dollar.

Bonds

The yield on 10-year Treasuries declined six basis points to 0.92%.Germany’s 10-year yield sank two basis points to -0.53%.Britain’s 10-year yield decreased five basis points to 0.361%.

Commodities

The Bloomberg Commodity Index was little changed.West Texas Intermediate crude climbed 0.1% to $41.51 a barrel.Gold strengthened 0.8% to $1,881.04 an ounce, the biggest advance in a week.

(An earlier version of the wrap corrected spelling of strategist name in fifth paragraph.)

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©2020 Bloomberg L.P.

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