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Stock Market Sell-Off: Dow Plunges 700 Points In Worst Drop Since October As Delta Variant Fears Mount

Topline

Stocks fell sharply Monday as the pandemic’s resurgence in the United States fueled expert concerns that the highly contagious Delta variant of Covid-19 could spur renewed restrictions and ultimately curtail the economic recovery.

Key Facts

The Dow Jones Industrial Average posted its biggest one-day point drop since widespread election uncertainty on October 28, tumbling about 725 points, or 2.1% Monday, while the S&P 500 shed 1.6% in its biggest decline since May; both indexes are about 3% below their closing highs on July 12.

Reflecting uncertainty over the economic recovery, travel stocks and leisure headed up much of the market’s losses, with Carnival Corp., American Airlines, United Airlines and Norwegian Cruise Lines tanking between 4.5% and 6% apiece.

Oil stocks, which tend to underperform when the market struggles, were also hit hard: Marathon Oil and Occidental fell roughly 5% and 4%, respectively, following a weekend deal among international oil producers that pushed recently spiking oil prices down about 8%.

The tech-heavy Nasdaq fell a softer 1.1%, buoyed slightly by a swath of biotechnology and pharmaceutical companies faring better than the rest of the market, including drug-makers Moderna, Cytokinetics and Applied Therapeutics. 

However, many big-tech companies set to report earnings before month’s end posted sizable losses, with Facebook and Apple down 1.2% and 2.7%, respectively.

In a Monday email, Oanda Senior Market Analyst Ed Moya said investors are “growing anxious” and selling stocks, commodities and even cryptocurrencies to buy U.S. Treasurys, generally safer investments that rallied Monday and drove yields on the 10-year note to a five-month low of 1.2%.

Crucial Quote 

“The main source of the global gloom is Covid, as the virus launches a resurgence with the Delta variant ravaging the large population of unvaccinated people,” Vital Knowledge Media founder Adam Crisafulli wrote in a Monday note to clients, adding that the market’s recent optimism and record highs have made it especially vulnerable to any perceived setbacks. “A slew of governments have reinstituted various forms of virus-related lockdown restrictions, and investors are growing concerned about the impact this will have on growth [in the second half].”

Contra

Despite the market’s big drop, Goldman Sachs analysts say the downside economic risks of the Delta variant look only “modest” in the near term—even if the U.S. experiences a virus resurgence similar to the one in the U.K., where new cases are growing at their fastest rate since January. Led by economist Jan Hatzius, the researchers argue widespread vaccination should protect against severe infections, and they point out consumer spending and economic activity largely held up during the variant-spurred wave of infections in the U.K.

Big Number

5%. That’s how much current concerns over the delta variant could tank the S&P, analyst Thomas Lee of Fundstrat Global Advisors told Marketwatch on Monday, suggesting the index could fall another 2% before losses are reversed. The index is up about 16% this year.

Key Background

After crashing last March, the market posted its quickest recovery in history during the pandemic, but experts have increasingly worried that rapidly spreading variants could once again halt economies. Rochelle Walensky, the director of the Centers for Disease Control and Prevention, said Friday some municipalities should consider imposing mask mandates and warned the rapidly spreading Delta variant is causing a “pandemic of the unvaccinated.” The pressure has intensified over the last few days, with Las Vegas and Los Angeles among major cities tightening their Covid-19 guidelines, fueling concerns that state and local governments may once again impose partial lockdowns. About 140 million Americans, roughly 44% of the nation’s population, have yet to receive a single Covid-19 vaccine dose.

Tangent

On the deal front, Zoom Video Communications announced Sunday night it plans to acquire cloud company Five9 for $14.7 billion in an all-stock deal, making it Zoom’s largest-ever acquisition. Shares of Zoom fell nearly 2% Monday despite the news. 

Further Reading

OPEC Oil Producers Reach Agreement To Boost Oil Supply As Prices Spike To Nearly 3-Year High (Forbes)

Fed Chair Powell Changes Tune On Inflation—Says Higher Prices Could Remain For Months (Forbes)

Dow And S&P 500 Hit New Highs Ahead Of Big Bank Earnings (Forbes)

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