Dow drops 700 points to end the week as coronavirus spike raises concern over the economy

Stocks fell sharply on Friday after Texas rolled back some of its reopening measures, raising concern about the latest spike in coronavirus cases and its impact on the economy. 

The Dow Jones Industrial Average closed 730.05 points lower, or 2.8%, at 25,015.55. The S&P 500 slid 2.4% to 3,009.05 and the Nasdaq Composite dropped 2.6% to close at 9,757.22.

Those losses led to the major averages' second weekly drop in three weeks. The Dow and S&P 500 fell 3.3% and 2.9%, respectively, for the week and the Nasdaq lost 1.9% in that time period. 

"Coronavirus cases are spiking and reopenings are being delayed, which at a minimum will impact earnings," said Tom Essaye, founder of The Sevens Report. "The resurgence in coronavirus cases is raising concerns that the rebound may be short-lived as voluntary or potentially more government mandated economic shutdowns are becoming increasingly likely."

Texas ordered all bars and establishments that receive more than 51% of their gross receipts from alcoholic beverages to shut down operations. Restaurants, meanwhile, must limit on-premise dining to less than 50% indoor capacity. "At this time, it is clear that the rise in cases is largely driven by certain types of activities, including Texans congregating in bars," Texas Gov. Greg Abbott said. 

Florida also announced it would suspend "on premises consumption" of alcohol at bars in the state after reporting a surge of nearly 9,000 new virus cases. In Arizona, the number of cases jumped by 5.4%, topping a seven-day average of 2.9%. At a nationwide level, the daily average number of confirmed coronavirus cases is now more than 33,000.

Shares of companies that would benefit from an economic reopening tumbled. United Airlines, American and Delta all slid more than 3%. Cruise operator Norwegian Cruise line dropped 5%. 

Jon Hill, rates strategist at BMO, said virus fears are making investors rethink positions ahead of the weekend, which is similar to the trading action seen in March and April. This is favorable for bonds and negative for stocks, as investors worry the economy may not rebound as sharply as expected. "It's very possible some of the optimism we saw in the datas could pull back hard in July and August."

The U.S. 5-year Treasury yield dropped to a record low of 0.29%. The 3-year rate also slid to an all-time low of 0.17%. Yields move inversely to prices. 

Banks under pressure after Fed stress test

The Federal Reserve's annual stress test of the major banks showed some banks could get close to minimum capital levels in scenarios related to the coronavirus pandemic.

Because of this, banks must suspend share repurchase programs and cap dividend payments at current levels for the third quarter. Wells Fargo and Capital One may be forced to cut their dividends, according to a Morgan Stanley analyst. 

"While I expect banks will continue to manage their capital actions and liquidity risk prudently, and in support of the real economy, there is material uncertainty about the trajectory for the economic recovery," Fed Vice Chair Randall Quarles said in a statement.

The announcement sent some bank shares lower on Friday. Bank of America and JPMorgan Chase both fell more than 5%. Wells Fargo slid 7.4% and Goldman Sachs fell 8.7%. 

Meanwhile, Nike shares slid 7.6% on the back of a surprising quarterly loss for the apparel giant. The company reported a loss of 51 cents per share and revenue of $6.31 billion for its fiscal fourth quarter. Nike's quarterly revenue reflected a drop of 38% on a year-over-year basis.

The losses on Friday came despite a record rise in consumer spending in May. The Commerce Department reported Friday that spending increased 8.2% last month, a positive sign for the U.S. economy amid a growing number of negative coronavirus headlines.

The government's report on how much Americans spent on goods and services in May was the largest one-month gain dating back to records beginning in 1959. Consumer spending represents more than two-thirds of economic demand in the U.S.

Correction: This story has been updated to reflect the S&P 500 dropped 2.4% on Friday.

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