Stocks Turn Negative As Experts Warn Against Undue Coronavirus Optimism

Stocks gave up their gains from earlier in the session on Tuesday, turning negative in the final hour of trading as Wall Street continues to closely monitor the coronavirus outbreak and whether the economy can eventually get back on track.

The Dow Jones Industrial Average lost 0.12% on Tuesday, while the S&P 500 was down 0.16% and the Nasdaq Composite dropped by 0.33%.

All three major indexes rallied almost 4% to start the day, but stocks pared back gains in the last couple hours of trading, as a 6% decline in oil prices—due to ongoing oversupply concerns—weighed on markets somewhat.

The market had moved higher in recent sessions, amid news that the number of new COVID-19 cases in the U.S. is starting to slow, which has added to optimism on Wall Street that the economy can eventually recover to pre-crisis levels.

Some experts, however, are warning that stock prices may be getting out of touch with reality, since the coronavirus outbreak will continue to weigh on the U.S. economy for the foreseeable future.

David Kostin, top equity strategist for Goldman Sachs, advised investors on Tuesday not to get too excited about the stock market’s recent rally. “Risk to the downside is greater than the opportunity to the upside from this point where we stand today,” he told CNBC.

“I would just remind you that in 2008 in the fourth quarter there were many different rallies, I call them bear market rallies, some of which almost 20% a couple of times — but the market did not bottom until March of 2009,” Kostin said.

Tuesday’s volatile session of trading follows a massive market rally on Monday, in which the Dow posted its third-biggest point gain ever. The Dow gained 7.8%, more than 1,600 points on Monday, while the S&P 500 jumped 7.2% and the Nasdaq rose 7.3%. It was also the S&P’s highest level since March 13.

Since the market hit a coronavirus crisis-level low point on March 23, nine different stocks have led the massive comeback, each rallying over 100%, according to FactSet data. Shares of companies like MGM Resorts and Darden Restaurants, which were especially hard-hit by the outbreak, have rallied 143% and 125%, respectively, over the last two weeks.

“Stock market volatility has remained high as investors continue to closely track COVID-19 containment efforts while getting a glimpse into how damaging travel restrictions, stay-at-home orders, and social distancing have been on the U.S. economy,” according to a recent note from LPL Financial, who predict that “stocks may revisit the March lows.”

The worst-performing sectors on Tuesday, dragging the market lower, were utilities and consumer staples. Stocks like Walmart and Kroger, which have benefited from higher demand due to the coronavirus pandemic, fell 3.2% and 2.3%, respectively.