US stocks on Monday notched their biggest one-day drop in a month on fears that rising coronavirus infections will dampen business activity and as another session passed without a deal for pre-election fiscal stimulus.

The S&P 500 fell as much as 2.9 per cent in afternoon trading, as the latest infection data undercut hopes of the virus being contained. However, the benchmark index trimmed its losses to end 1.9 per cent lower — its biggest one-day loss since September 23 — as Nancy Pelosi, Democratic speaker of the House of Representatives, expressed optimism on a stimulus deal.

The sell-off was broad, with economically sensitive sectors such as energy, financials and industrial groups under pressure. Travel and leisure companies sustained heavy selling.

It followed a gloomy day in Europe, in which Frankfurt’s benchmark Dax index slumped 3.7 per cent. Germany’s SAP tumbled as much as 22 per cent — its worst one-day fall since the mid-1990s — after the business software group warned that renewed lockdown measures had hit demand for its services. The broader Stoxx 600 was down 1.8 per cent.

“Nothing is to be gained by pretending that the pandemic and the economic pain it has caused are coming to a swift end,” said David Kelly, chief global strategist at JPMorgan Asset Management.

“Rather, investors, policymakers and the general public would all be well served by accepting the reality of both what it will take and how long it will take to recover from the pandemic recession.”

US coronavirus case numbers have surged in recent days, taking the seven-day total to a record for the pandemic. In the EU, Italy and Spain announced sweeping measures on Sunday to address a jump in new cases.

“Cases hit an all-time high in the US, hospitalisations are up, vaccines are coming but not right away, Europe is having a brutal second wave and stocks were really close to their highs,” said Jim Tierney, chief investment officer of concentrated US growth at AllianceBernstein.

With that and the election just over a week away “some pullback seems warranted”, he said, adding that the severity in the stock market sell-off “is not always rational on a daily basis”.

Line chart of S&P 500 performance (%) showing US stocks had a negative week last week. This one has begun even worse

Investors shifted into Treasuries, considered to be haven assets during times of market tumult. The 10-year yield fell 0.037 percentage points to 0.8 per cent, reflecting an increase in price. The dollar advanced 0.3 per cent against a basket of six peers.

Wall Street’s Vix index climbed 4.87 points to 32.4, the highest level since early September. The rise in the so-called “fear gauge” signals traders are bracing for further jolts of volatility over the next month.

While investor hopes that a stimulus a deal might be passed before the election have been dimming, Ms Pelosi remained “optimistic” that an agreement can be reached before next week’s vote, her spokesperson Drew Hammill said in a tweet, following her 52-minute phone conversation with Steven Mnuchin, Treasury secretary, on Monday afternoon.

Earlier in the day, Larry Kudlow, White House economic adviser, told CNBC that stimulus talks had slowed down, but were not ending. “The big issue here right now is we are close, but there are still important policy issues that separate us,” he said. “Right now, unfortunately the goalposts have moved and there are still some unanswered questions,” he added.

Energy stocks were among with worst fallers in the US and Europe, reflecting a decline in crude oil prices. Brent crude, the international benchmark, slipped more than 3 per cent to below $41 a barrel on fears that rising infections would hit global demand.

Travel groups also fell sharply. British Airways parent IAG dropped more than 7 per cent in London while Royal Caribbean Cruises, Norwegian Cruise Lines and Carnival all fell by 8 per cent or more in New York.

Mark Meadows, the White House chief of staff, said over the weekend: “We’re not going to control the pandemic. We are going to control the fact that we get vaccines, therapeutics and other mitigation areas.”

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