NEW YORK (AP) – Resurgent pandemic worries saw stocks plummet from Wall Street to Tokyo on Monday, fueled by fears that faster-spreading variants of the virus could turn the strong economic rebound on its head. The S&P 500 fell 68.67, or 1.6%, to 4,258.
NEW YORK (AP) – Resurgent pandemic worries saw stocks plummet from Wall Street to Tokyo on Monday, fueled by fears that faster-spreading variants of the virus could turn the strong economic rebound on its head.
The S&P 500 fell 68.67, or 1.6%, to 4,258.49 after breaking a record just a week earlier. Another sign of concern was that the 10-year Treasury yield hit its lowest level in five months as investors looked for safer places to put their money.
The Dow Jones Industrial Average slumped 725.81, or 2.1%, to 33,962.04, while the Nasdaq Composite fell 152.25, or 1.1%, to 14,274.98.
The decline also circled the world, with several European markets down around 2.5% and Asian indices a little less. The price of US benchmark crude oil, meanwhile, fell more than 7% after OPEC and allied nations agreed on Sunday to finally allow higher oil production this year.
Growing concern about the virus may seem strange to people in parts of the world where masks are being removed or already in place, thanks to COVID-19 vaccinations. But the World Health Organization says cases and deaths are rising globally after a period of decline spurred on by the highly contagious Delta variant. And given the close interconnection of the global economy, a hit can quickly hit others on the other side of the world anywhere.
Even in the United States, where vaccination rates are higher than many other countries, Los Angeles County’s people are forced to wear masks indoors again, regardless of whether they have been vaccinated after spikes in cases, hospitalizations, and deaths.
Across the country, the daily number of COVID cases has increased by nearly 20,000 to around 32,000 in the past two weeks. The vaccination campaign has hit a wall, the average number of daily vaccinations has dropped to its lowest level since January, and cases are increasing in all 50 states.
It is for this reason that markets are concerned, even though the economy is reportedly still recovering at a fantastically fast pace and the general expectation is for sustained growth. Any deterioration in virus trends threatens the high prices stocks have reached based on expectations that the economy will meet those high projections.
Financial markets have shown signs of heightened concern for some time, but the US stock market has remained largely resilient. The S&P 500 was only two weeks down in the past eight weeks, and the last time it fell as much as 5% from a record high was in October.
Several analysts pointed to this backdrop of high prices and very calm movements for weeks while analyzing Monday’s decline.
“It’s a bit overreacted, but when you have a market that is making record highs, it’s having the kind of run we’ve had, with virtually no backlog, it’s extremely prone to any kind of bad news,” said Randy Frederick, Vice President of Trading & Derivatives at Charles Schwab, “It was just a question of what that turning point was and it seems we have finally reached this morning” with concerns about the Delta variant.
He and other analysts are optimistic that stocks can rebound quickly. Investors have recently been trained to see any decline in prices only as an opportunity to buy at low prices.
Barry Bannister, chief equity strategist at Stifel, was more pessimistic. He says the stock market may be in the early stages of declining as much as 10% after its big rise. The S&P 500 nearly doubled after hitting its bottom in March 2020.
“The reviews just got too frothy,” he said. “There was just so much optimism out there.”
The bond market was louder and more persistent in its warnings. The yield on 10-year government bonds tends to move in line with expectations for economic growth and inflation and has fallen to around 1.75% since the end of March. It fell from 1.29% on Monday to 1.20% on late Friday.
Analysts and professional investors say that a long list of possible reasons is responsible for the sharp movements in the bond market, which is viewed as more rational and sober than the stock market. At the center, however, is the risk that the economy could weaken sharply from its current extremely high growth.
In addition to the new flavors of the coronavirus, other risks to the economy include the U.S. government’s waning pandemic relief efforts and a U.S. Federal Reserve that is expected to begin reducing its support for the markets later this year.
The pressure to sell on Monday was widespread, with nearly 90% of stocks in the S&P 500 lower. Even big tech stocks fell, with Apple losing 2.7% and Microsoft 1.3%. Such stocks seemed almost immune to viral fears during previous downturns and rose with expectations of continued growth almost regardless of the strength of the economy.
For the S&P 500, analysts are forecasting earnings growth of almost 70% year-on-year for the second quarter. That would be the strongest growth since 2009, when the economy emerged from the Great Recession.
But just as fears that economic growth has already peaked are mounting, analysts are trying to stifle growth rates for corporate earnings in the quarters and years ahead.
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AP Business Writer Yuri Kageyama contributed to this.
Stan Choe, Alex Veiga, and Damian J. Troise, The Associated Press
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