Dow extends losses in the final hour of trading, now down more than 200 points

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Stocks fell on Friday as rising new coronavirus cases, coupled with questions around central-bank funding for a key emergency programs, cast doubt on a swift economic recovery.

The Dow Jones Industrial Average dropped 219 points, or 0.8%, and hit its session low with less than an hour left in the session. The S&P 500 dipped 0.5%. The Nasdaq Composite was down 0.2%, erasing an earlier gain.

Boeing and American Express were the worst-performing stocks in the Dow, falling 2.9% and 1.5%, respectively. Financials and industrials fell 0.9% and 1%, respectively, to lead the S&P 500 lower.

The U.S. seven-day average of daily new Covid-19 infections now stands at 165,029, according to a CNBC analysis of John Hopkins data, 24% higher than a week ago. On Thursday alone, a record 187,833 cases were reported. Many states have rolled back reopening plans and implemented fresh restrictions to curb the spread.

California Gov. Gavin Newsom on Thursday issued a “limited Stay at Home Order” on a majority of the state’s residents, requiring nonessential work and gatherings to cease between 10 p.m. and 5 a.m. Meanwhile, the Centers for Disease Control and Prevention advised Americans against traveling for Thanksgiving.

JPMorgan economist Michael Feroli wrote in a note that this latest round of restrictions will “likely deliver negative growth” in the first quarter of 2021. He also downgraded his first-quarter GDP outlook to a contraction of 1%, making him the first Wall Street economist to forecast negative GDP for the start of next year.

Friday’s losses put the Dow and S&P 500 on pace for their first weekly declines in three weeks. The Dow was headed for a 0.7% loss this week. The S&P 500 has lost 0.6% week to date.

“The market can see there’s light at the end of the tunnel,” said Aaron Clark, portfolio manager at GW&K Investment Management. “On the other side of that are spiking cases and the shutdown measures needed to keep that in check. That’s what the market’s wrestling with.”

Also weighing on sentiment Friday was a disagreement between the Treasury Department and the Federal Reserve over the continuation of funding for some of the emergency programs implemented during the recession. 

Treasury Secretary Steven Mnuchin is seeking to end a handful of the Fed facilities that bought corporate bonds as well as the Main Street Lending Program targeted towards small- and medium-sized businesses. The move has drawn pushback from the central bank, which said the programs continue to serve an important role to support the vulnerable economy.

“Mnuchin’s move will tighten financial conditions and removes a safety net for markets at the wrong moment,” Krishna Guha, Evercore ISI vice chairman and head of global policy and central bank strategy, said in a note on Thursday.

“Bond king” Jeffrey Gundlach said Mnuchin’s request would shut down the corporate credit programs that “propped up” the markets in the spring. The DoubleLine Capital CEO raised the question if the markets can hold up without the Fed’s support, saying “the training wheels are coming off.”

To be sure, Mnuchin told CNBC’s Jim Cramer that people were misunderstanding this decision, adding there is still plenty of money to provide funding if needed.

This was a very simple thing. We’re following the intent of Congress,” Mnuchin said on “Squawk on the Street.” Separately, Mnuchin added he and Republican leaders will discuss a plan to push through targeted fiscal stimulus with the help of Democrats.

On the bullish side, markets got more good news on the vaccine front with Pfizer and BioNTech saying they will apply for an emergency use authorization for their vaccine from the Food and Drug Administration on Friday. The companies said they can be ready to ship the vaccine within hours after the FDA approves the authorization.

Brent Schutte, chief investment strategist for Northwestern Mutual Wealth Management, thinks the market could be volatile in the near-term, but noted that “any market downside is going to be supported by that you do have very effective vaccines that are going to be available in the not-so-distant future.”

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Correction: A previous version of this story misspelled Schutte’s first name.

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