Stocks fell on Monday as traders weighed the reopening of the economy along with brewing tensions between China and the U.S.
The Dow Jones Industrial Average fell about 240 points, or 1%, while the S&P 500 lost 0.5%. The Nasdaq Composite eked out a 0.2% gain, lifted by big technology shares. Microsoft, Amazon and Netflix all rose more than 1%, capping losses in the broader market.
Airline shares were among the biggest losers in the S&P 500, with Delta, United, American Airlines all dropping more than 7%. The declines came after Warren Buffett said over the weekend his Berkshire Hathaway sold all of its airline holdings because of the coronavirus outbreak. Plane maker Boeing also fell nearly 3%.
While Buffett was optimistic over the long term about the outlook for America, the move shows his concern that the pandemic has changed certain industries permanently and could be a sign that other investors are too optimistic about the economy returning to normal quickly.
“Mr. Buffett is a long-term investor, so his decision to sell reflects his belief that airline industry is facing future challenges that fundamentally change the value-capture of that business,” wrote Tom Lee of Fundstrat in a note to clients.
Disney fell more than 3% following a downgrade at MoffettNathanson. The firm said the economic hit to the entertainment giant will last longer than expected, with theme parks in particular facing a multi-year recovery.
Investors are also grappling with worries over another spat between China and the U.S. On Sunday, Secretary of State Mike Pompeo said there was a “significant amount of evidence” connecting the coronavirus to a lab in the Wuhan region of China.
Those comments came after National Economic Council Director Larry Kudlow said Friday that China will be “held accountable” for the coronavirus. Earlier in the week, President Donald Trump said he was considering imposing tariffs on China for its handling of the outbreak.
States across the U.S. are letting nonessential businesses reopen and are easing stay-at-home orders in an effort to restart the economy after the coronavirus forced a near-global halt in economic activity. However, this easing comes as data from the World Health Organization showed the U.S. had its deadliest 24 hours of the outbreak between Thursday and Friday.
“We expect stocks to remain volatile as markets struggle to find a balance between announcements on the lifting of lockdowns, data on potential treatments and vaccines, economic releases, news on the course of the pandemic, and changing political dynamics,” Mark Haefele, chief investment officer at UBS Global Wealth Management, said in a note on Monday.
Buffett sells airline stakes
“The world has changed for the airlines. And I don’t know how it’s changed and I hope it corrects itself in a reasonably prompt way,” Buffett said Saturday from Berkshire’s first-ever virtual shareholder’s meeting.
Berkshire had more than $4 billion invested across United, American, Southwest, and Delta Airlines before the sale. Buffett noted his admiration for the industry but added there are events “on the lower levels of probabilities” that call for a change of plans.
Monday’s drop pushed American, United and Delta’s 2020 losses to more than 60%, while Southwest has lost half of its value this year.
Berkshire also reported a record $137 billion in cash after the first quarter, but Buffett said he doesn’t “see anything that attractive” to deploy that money. Shares of Berkshire fell 2.8% on Monday.
Increasing hopes of a possible treatment from Gilead Sciences also lifted sentiment last month. On Sunday, CEO Daniel O’Day said remdesivir — Gilead’s promising antiviral drug — will be available to coronavirus patients this week.
Stocks notched their best monthly performance in over 30 years in April in part because of hopes of an economic reopening. Last month, the S&P 500 rallied 12.7%.
More than 3.5 million cases of Covid-19 have been confirmed globally, including over 1.1. million in the U.S. alone, according to data from Johns Hopkins University.
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