Dow closes 650 points lower, posts worst day since early September

Stocks fell sharply on Monday as coronavirus infections jumped and negotiations for a fiscal stimulus package before the election stalled once again.

The Dow Jones Industrial Average closed 650.19 points lower, or 2.3%, at 27,685.38. The S&P 500 slid 1.9% to 3,400.97 and the Nasdaq Composite dipped 1.6% to 11,358.94. Monday's decline erased the monthly gains for the Dow Industrials. It was the Dow's biggest one-day drop since Sept. 3 and its first close below 28,000 since Oct. 6. The Dow briefly fell as much as 965.41 points, or 3.4%.

The decline came as data compiled by Johns Hopkins University showed daily coronavirus cases in the U.S. have risen by an average of 68,767 over the past seven days, a record. On Sunday alone, more than 60,000 cases were reported. The country saw more than 83,000 new infections on both Friday and Saturday after outbreaks in Sun Belt states, surpassing a previous record of roughly 77,300 cases set in July.

"To me, this is Phase 2 of the pandemic," said Frank Rybinski, chief macro strategist at Aegon Asset Management. "Until we get some eradication of the virus, it's going to be like a gray cloud" over the market. Rybinski added his firm has been "reducing risk" from its portfolios in recent months.

Optimism also dimmed over the White House and Republicans striking a stimulus deal with Democrats before the election. White House economic advisor Larry Kudlow told CNBC's "Squawk Box" on Monday that talks had slowed down, but noted they are still ongoing.

House Speaker Nancy Pelosi, D-Calif., said in a statement that she and the Democrats "have stressed the importance of testing, but the Administration has never followed through. The Republicans' continued surrender to the virus – particularly amid the recent wave of cases – is official malfeasance."

She also noted that a deal must be reached "as soon as possible," but added that "we cannot accept the Administration's refusal to crush the virus, honor our heroes or put money in the pockets of the American people."

"The market is likely to drift lower near term (first SPX support at 3,209) in the face of Stimulus disappointment ... virus resurgence, and intensifying election uncertainty," said Julian Emanuel, a strategist at BTIG, in a note.

Stocks with the most to lose from rising cases and a stalled stimulus plan led the decline Monday. Royal Caribbean shares fell 9.7% and were the biggest laggards in the S&P 500. Delta fell 6.1%. Norwegian Cruise Line closed 8.5% lower and United Airlines slid 7%. American Airlines pulled back by 6.4%.

SAP, one of the biggest software companies in Europe, saw its shares plunge more than 20% after warning that businesses are holding back from spending; it also cut its earnings and revenue estimates for 2020. Oracle and Microsoft followed SAP lower, sliding 4% and 2.8%, respectively.

"The double whammy of a stalled stimulus bill and new highs in cases is a harsh reminder of the many worries that are still out there," said Ryan Detrick, chief market strategist at LPL Financial. "Most of the recent economic data has been strong, but when you see parts of Europe going back to rolling shutdowns, it reminds us this fight is still far from over."

This week marks the last week of October and the final trading period before Nov. 3. Former Vice President Joe Biden maintains a sizable lead over President Donald Trump in national polls, although the gap has narrowed slightly as of late.

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