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Why Is the Stock Market Plunging Monday?

By Dan Caplinger – Updated Oct 26, 2020 at 12:02PM

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A big drop in major market benchmarks has investors asking questions.

Wall Street clearly has a case of the Monday morning blues this week, and investors' bad attitude showed up in the early moves of the markets. Shortly after 11 a.m. EDT today, the Dow Jones Industrial Average (^DJI -0.10%) had fallen 673 points to 27,663. The S&P 500 (^GSPC -0.61%) was down 68 points to 3,397, and the Nasdaq Composite (^IXIC -1.00%) had dropped 177 points to 11,371.

At first glance, most of the market's worries are exactly the same as those that have been around for some time. It therefore doesn't seem to make sense that investors would be choosing to act on those concerns now rather than in the past. Nevertheless, the way in which markets are interacting with one another signals growing nervousness about a single risk factor: The coronavirus pandemic might not end as easily or quickly as optimists have hoped.

Angry-looking grizzly bear in a pine forest with snow.

Image source: Getty Images.

Another COVID-19 wave is here

The most alarming trend recently has been the uptick in COVID-19 case counts both in the U.S. and around the world. Within the U.S., daily counts reached record levels last week, outpacing even the scary numbers from early on in the pandemic.

What's especially concerning is that the new outbreaks don't fit into the same neat geographical divisions that investors have gotten used to seeing. Even areas of the country that had seen prolonged downturns in the number of COVID-19 cases have watched their progress disappear in the last week. Both urban and rural areas have proved susceptible to massive outbreaks that are taxing the healthcare infrastructure in many locations.

Meanwhile, other parts of the world are faring even worse. European countries like France and Belgium have seen massive upswings that put them even worse off than the U.S. on a per capita basis. Other nations across the European Union are ramping up efforts to control the outbreak and are considering putting extreme protective measures back in place from early spring.

Even as the COVID-19 threat rears up again, Washington appears no closer to offering new help to ailing Americans. Stimulus measures are wrapped up in typical political wrangling, and it now appears extremely unlikely that any action will take place until after next Tuesday's elections.

COVID-vulnerable stocks are falling hard

Investors have gotten used to the stock market's behavior when investors worry about the coronavirus crisis. They tend to sell off the companies that are most closely tied to the pandemic.

The best example today is in the cruise ship industry. Royal Caribbean (RCL 0.95%), Norwegian Cruise Line Holdings (NCLH 0.12%), and Carnival (CCL 0.59%) are all down 9% to 10%. With the Centers for Disease Control and Prevention having to decide this week whether to extend its no-sail order beyond the end of October, the last thing shareholders in the three companies wanted was a big boost in case counts to offer evidence backing a further delay in resuming operations.

Meanwhile, Zoom Video Communications (ZM -3.10%) is once again resisting the market downturn, rising almost 4%. Many have attacked Zoom's huge valuation and argued that once the pandemic ends, the stock will inevitably fall. Yet as it appears increasingly likely that stay-at-home restrictions will go back into effect at least in some parts of the world, Zoom will remain a vital link for many to get business done.

Stock market sentiment has turned on a dime before, and it will again. You shouldn't be surprised if the market rebounds next week, tomorrow, or even by this afternoon. For now, though, investors appear more comfortable to let things play out before they're ready to jump on any prospective bargains in the falling stock market.

Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Zoom Video Communications. The Motley Fool recommends Carnival. The Motley Fool has a disclosure policy.

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