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Stocks drop slightly amid concerns over virus cases and Federal Reserve funding

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Inventories fell on Friday as the rise in new coronavirus cases casts doubt on a rapid economic recovery.

The Dow Jones Industrial Average plunged 58 points, or 0.2%. The S&P 500 slipped 0.1% with the Nasdaq Composite.

JPMorgan Chase and American Express were among the worst performing stocks in the Dow Jones, down 0.9% and 0.8%, respectively. Financials fell 0.5% to lead the S&P 500 lower along with energy.

According to a CNBC analysis of John Hopkins data, the seven-day average of new daily Covid-19 infections in the United States now stands at 165,029, 24% more than a week ago. As of Thursday alone, a record 187,833 cases were reported. Many states have canceled plans to reopen and implemented new restrictions to curb the spread.

California Gov. Gavin Newsom on Thursday issued a “limited stay at home order” to the majority of state residents, demanding that non-essential work and gatherings cease between 10 p.m. and 5 a.m. Meanwhile, the Centers for Disease Control and Prevention has advised Americans against traveling for Thanksgiving.

Major averages were roughly flat for the week that began Friday’s session as the growing number of cases slowed the market rally to record levels. The Dow and S&P 500 were little changed until Thursday’s close and the Nasdaq Composite had gained 0.6%.

“The market is falling apart a bit as investors digest the recent surge, grappling with a widening Covid-19 spread,” said Tony Dwyer, chief market strategist at Canaccord Genuity, in a note .

A disagreement between the Treasury Department and the Federal Reserve on Friday over whether to continue funding some of the emergency programs implemented during the recession also weighed on sentiment.

Treasury Secretary Steven Mnuchin is seeking to end a handful of Fed facilities that have bought corporate bonds as well as the Main Street lending program for small and medium-sized businesses. The move was pushed back by the central bank, which said programs continued to play an important role in supporting the vulnerable economy.

“Mnuchin’s decision will tighten financial conditions and remove a safety net for markets at the wrong time,” Krishna Guha, Evercore ISI vice president and head of global policy and central bank strategy, said Thursday. .

The king of bonds, Jeffrey Gundlach, said Mnuchin’s demand would end the corporate credit programs that were “supporting” the markets in the spring. The CEO of DoubleLine Capital has raised the question of whether the markets can resist without the support of the Fed, saying that “the driving wheels are coming off”.

To be sure, Mnuchin told CNBC’s Jim Cramer that people misunderstand the move, adding that there is still plenty of money to provide much needed funding.

“It was a very simple thing. We are following the intention of Congress,” Mnuchin said on “Squawk on the Street”.

People familiar with the matter also told CNBC’s Steve Liesman that Mnuchin or a new treasury secretary in the Biden administration may decide to revive emergency lending programs as part of a new deal with the Fed.

On the bullish side, markets had more good news on the vaccine front with Pfizer and BioNTech announcing they would seek emergency use authorization for their vaccine from the Food and Drug Administration on Friday. The companies said they could be ready to ship the vaccine within hours of FDA approval of the clearance.

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