Resurgent pandemic worries knocked stocks sharply lower on Wall Street Monday, with declines fuelled by fears that faster-spreading variants of the coronavirus may upend the United States’ economic recovery.
The S&P 500 closed 1.59 percent lower, after setting a record high just a week earlier. In another sign of worry, the yield on the 10-year United States Treasury bill touched its lowest level in five months as investors scrambled for safer places to put their money.
The Dow Jones Industrial Average finished the day 725.81 points, or 2.09 percent lower, to hit 33,962.04; while the Nasdaq Composite Index dropped 152.25 points, or 1.06 percent, to finish at 14,274.98.
US airlines and stocks of other companies that would get hurt the most by potential COVID-19 restrictions took some of the heaviest losses Monday, similar to the early days of the pandemic in February and March 2020. Mall owner Simon Property Group fell 5.9 percent, and cruise operator Carnival lost 5.5 percent.
The drop also circled the world, with several European markets sinking roughly 2.5 percent and Asian indexes down a bit less. The price of benchmark US crude, meanwhile, sank more than 6 percent after the Organization of the Petroleum Exporting Countries and allied nations agreed on Sunday to eventually allow for higher oil production this year.
Increased worries about the coronavirus may seem strange to people in parts of the world where masks are coming off, or already have, thanks to COVID-19 vaccinations. But the World Health Organization says cases and deaths are climbing globally after a period of decline, spurred by the highly contagious Delta variant. And given how tightly connected the global economy is, a hit anywhere can quickly affect others on the other side of the world.
Experts are saying that Indonesia has become a new epicentre for the pandemic as outbreaks worsen across Southeast Asia. Meanwhile, some athletes have tested positive for COVID-19 at Tokyo’s Olympic Village, with the Olympic Games due to open Friday.
Even in the US, where the vaccination rate is generally higher, people in Los Angeles County once again must wear masks indoors regardless of whether they’re vaccinated following spikes in cases, hospitalisations and deaths.
Across the US, the daily number of COVID-19 infections has soared by nearly 20,000 over the last two weeks to about 32,000. The vaccine campaign has hit a wall, with the average number of daily inoculations sinking to the lowest levels since January. Cases are on the rise in all 50 states.
Localised coronavirus surges are starting to affect heavily unvaccinated communities in places like Missouri and Arkansas, where hospitals are running out of space again. Almost all of the hospitalised COVID-19 patients are unvaccinated. More than 68 percent of the US adult population has received at least one dose of vaccine and 59 percent are fully vaccinated. And about a dozen states have yet to vaccinate 40 percent of their populations.
Financial markets have been showing signs of increased concerns for a while, but the US stock market had remained largely resilient. The S&P 500 has had just two down weeks in the last eight, and the last time it had even a 5 percent pullback from a record high was in October.
Several analysts pointed to that backdrop of high prices and very calm movements for weeks while dissecting Monday’s drop.
“It’s a bit of an overreaction, but when you have a market that’s at record highs, that’s had the kind of run we’ve had, with virtually no pullback, it becomes extremely vulnerable to any sort of bad news,” said Randy Frederick, vice president of trading and derivatives at Charles Schwab. “It was just a matter of what that tipping point was, and it seems we finally reached that this morning” with worries about the Delta variant.
He and other analysts are optimistic that stocks can rebound quickly. Investors have been trained recently to see every dip in stocks as merely an opportunity to buy low. Plus, the general expectation is still for the economy to continue growing.
Barry Bannister, chief equity strategist at Stifel, was more pessimistic. He says the stock market may be in the early stages for a drop of as much as 10 percent following its big run higher in prices. The S&P 500 nearly doubled after hitting its bottom in March 2020.
“The valuations, they just got too frothy,” he said. “There was just so much optimism out there.”
The bond market has been louder and more persistent in its warnings. The yield on the 10-year Treasury tends to move with expectations for economic growth and for inflation, and it has been sinking since late March, when it was at roughly 1.75 percent. It fell to 1.19 percent Monday from 1.29 percent late Friday.
Analysts and professional investors say a long list of reasons is potentially behind the sharp moves in the bond market, which is seen as more rational and sober than the stock market. But at the heart is the risk the US economy may be set to slow sharply from its current, extremely high growth.
Besides the new variants of the coronavirus, other risks to that economy include fading pandemic relief efforts from the US government and a Federal Reserve that looks set to begin paring back its assistance for markets later this year.
Monday’s selling pressure was widespread, with 95 percent of the stocks in the S&P 500 lower. Even Big Tech stocks were falling, with Apple down 2.9 percent and Microsoft 1.6 percent lower. Such stocks seemed nearly immune to virus fears during earlier downturns, rising on expectations they’ll continue growing almost regardless of the economy’s strength.
The losses came despite several companies reporting even stronger profit growth for April through June than analysts expected. Tractor Supply said both its profit and revenue topped Wall Street’s expectations, for example, but its stock fell 4.5 percent.
Across the S&P 500, analysts are forecasting profit growth of nearly 70 percent for the second quarter from a year earlier. That would be the strongest growth since 2009, when the economy was climbing out of the Great Recession.
But just like worries are rising that the economy’s growth has already peaked, analysts are trying to handicap by how much growth rates will slow in upcoming quarters and years for corporate profits.
First published on: Al Jazeera