US stocks fell for a fourth straight week, despite notching gains on Friday, as investors confronted the reality of a second coronavirus wave in Europe and broader uncertainty about the prospects of additional stimulus measures from Congress.

The S&P 500 closed up 1.6 per cent on Friday, extending gains from the day before. But steeper losses on Monday and Wednesday dragged down the benchmark index, resulting in a 0.6 per cent decline for the week. The tech-heavy Nasdaq Composite fared better, rising 2.3 per cent on Friday for a 1.1 per cent gain on the week.

Meanwhile, European bourses remained largely negative on Friday.

Nerves and a broad equity sell-off this week were sparked by rising infections, renewed lockdown measures, a more cautionary tone from policymakers and disappointing eurozone data that pointed to a slowing economic recovery.

“People had just got comfortable running a bit more risk in portfolios,” said Jason Borbora-Sheen, portfolio manager at Ninety One. “This will be a painful episode.”

The Stoxx Europe 600 closed down 0.1 per cent on Friday and has now lost almost 3 per cent of its value so far this month. Equities on the continent are heading for the worst month since the March sell-off, as bourses in Frankfurt and Milan fell by more than 1 per cent on Friday.

The FTSE 100 was more resilient, closing up 0.3 per cent, helped by a weakening pound that bolsters exporters listed on the London index.

Fahad Kamal, chief investment officer at Kleinwort Hambros, Société Générale’s private banking and wealth management division, said September had been “a microcosm of the year”.

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The month began with rising equity prices, with investors optimistic that the economic recovery was in full swing, followed by a broad sell-off as traders grew concerned that stocks were overvalued and the recovery was waning.

“I don’t think that this has been some fundamental readjustment towards a downturn or another bear market” but instead marks a healthy correction, Mr Kamal added.

Investors also attributed this week’s choppy equity performance to the ongoing stalemate gripping US legislators over the contents of a new stimulus package. Fed officials, including chairman Jay Powell and vice-chairman Richard Clarida, ramped up their calls this week for additional fiscal support and warned of a much more gloomy outlook without it.

Democrats have put forward a new $2.4tn plan, but economists are broadly sceptical something will get done soon.

“Perhaps if the economy turns down more than expected in the coming months and risky assets come under pressure that will help Congress find the votes to get this done,” said James Sweeney, chief economist and chief investment officer for the Americas at Credit Suisse. “Every week that passes, the likelihood goes down.”

“With the Supreme Court news and the further jump in partisan tensions, it looks even less likely,” Mr Sweeney added, referring to the recent passing of justice Ruth Bader Ginsburg.

Max Gokhman, head of asset allocation for Pacific Life Fund Advisors, flagged the upcoming US presidential election in November as another source of volatility for markets, especially given President Donald Trump’s refusal this week to commit to a peaceful handover of power if he were to lose.

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“It is going to get a bit bumpier,” he said. “We are crossing some turbulence as we get closer to the storm front that is the election.”

Column chart of Stoxx Europe 600 index showing European stocks heading for worst month since March sell-off

On Thursday the UK government announced plans to replace the furlough scheme with a Germany-style wage subsidy plan, in which the Treasury would subsidise people who worked at least a third of their usual hours. Employees unable to work would not be eligible, however. “I cannot save every business. I cannot save every job,” said chancellor Rishi Sunak.

Sven Jari Stehn, chief European economist at Goldman Sachs, said he was sceptical the scheme would be enough to encourage employers to retain a large proportion of employees on furlough. He expected 2.2m workers to move off the furlough scheme into unemployment.

Economically sensitive sectors including car and parts makers, travel and leisure companies and banks were among the biggest fallers in Europe. Industries sought for their relatively stable revenue, such as utilities, dodged the selling.

European government bonds edged up in price as investors shifted from equities. The 10-year Bund yield fell roughly 0.03 percentage points to minus 0.53 per cent, with its French counterpart down a similar margin to minus 0.26 per cent. US Treasuries also caught a bid, with the yield on the benchmark 10-year note lower by 0.01 percentage points, at 0.65 per cent. Yields fall as prices rise.

The US dollar, often viewed as a haven asset, rallied 0.4 per cent at one point to near a month-high against a basket of its trading peers.

Encouraged by the prospect of renewed stimulus measures in the US, stocks in the Asia-Pacific region closed broadly higher on Friday. Tokyo’s Topix was up 0.5 per cent and China’s CSI 300 rose 0.2 per cent. But Hong Kong’s Hang Seng slipped 0.3 per cent, weighed down by the healthcare and cyclicals sectors.

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Via Financial Times