New York  —  US stocks fell sharply on Wednesday as a surge in coronavirus cases in the US  reignited fears after a new round of quarantines, compounded by a worsening forecast of the economic damage from the pandemic.

The US has recorded the second-largest rise in infections since the health crisis began, with states where restrictions meant to slow the spread of the disease were lifted early seeing a flare-up in cases.

The governors of New York, New Jersey and Connecticut announced that visitors from states with high coronavirus infection rates must self-quarantine for 14 days on arrival.

“Markets have to start taking that seriously as it might impact the pace of the economic recovery and different states roll out plans,” said Art Hogan, chief market strategist at National Securities in New York.

“Today was finally the day markets came to terms with the fact that increasing Covid-19 cases could mean a slower recovery in the economy.”

Shares of US airlines, resorts and cruise operators slumped. Royal Caribbean Cruises, Norwegian Cruise Line Holdings and Wynn Resorts all tumbled by at least 9% while the NYSE Arca Airline index plunged 7.04%.

The pandemic was causing wider and deeper damage to economic activity than first thought, the International Monetary Fund said, prompting it to slash 2020 global output forecasts further to 4.9% from 3%.

Advanced economies have been particularly hard hit, with US output now expected to shrink 8%, more than 2 percentage points worse than the April forecast.

Wall Street's fear gauge, the CBOE volatility index, rose to a one-week high at 37.12.

A slate of better-than-feared economic reports, easing lockdowns and huge stimulus measures have powered the Nasdaq to an all-time high and put the benchmark S&P 500 on track for its best quarterly performance since 1998.

The S&P 500 and Dow Jones Industrials are about 10% and 14% from their respective February record closing highs.

The Dow Jones Industrial Average fell 761.2 points, or 2.91%, to 25,394.9, the S&P 500 lost 87.93 points, or 2.81%, to 3,043.36 and the Nasdaq Composite dropped 251.87 points, or 2.49%, to 9,879.50.

The biggest decliner among the 11 major S&P subsectors was energy, as crude prices fell on a report showing another record storage level and the possibility of a drop in demand on a pandemic resurgence.

In addition to coronavirus concerns, cruise operator Carnival declined 10.90% as ratings agency Standard & Poor's downgraded its bonds to junk status, forecasting continued weak demand for the cruise industry.

Dell Technologies was a bright spot, as its shares jumped 7.61% after a report said the company was considering spinning off its roughly $50bn stake in cloud computing software maker VMware. VMware advanced 2.85%.