Investors dump stocks, buy bonds as virus fears flare up again

NEW YORK (AP) – Resurgent concerns about a pandemic sent stocks plummeting from Wall Street to Tokyo on Monday, fueled by fears that faster-spreading variants of the virus could undermine the economy’s strong recovery.

The S&P 500 fell 2.1% in afternoon trading after setting a record just a week earlier. Another sign of concern was that 10-year Treasury yields hit their lowest level in five months as investors looked for safer places to keep their money.

The Dow Jones Industrial Average fell 935 points, or 2.7%, to 33,753, as of 1:50 p.m. Eastern Time. The Nasdaq composite was down 1.4%.

Airlines and stocks of other companies that would be most affected potential COVID-19 restrictions caused some of the heaviest losses, similar to the early days of the pandemic in February and March 2020. United Airlines lost 6.2%, mall owner Simon Property Group fell 6% and cruise operator Carnival fell 5 .6%.

The decline also circled around the world, with several European markets falling about 2.5% and Asian indices falling slightly less. The price of US benchmark oil, meanwhile, fell by more than 7% after OPEC and allied countries agree on Sunday to ultimately enable higher oil production this year.

Increased concerns about the virus 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 the number of cases and deaths is rising worldwide after a period of decline spurred by the highly contagious delta strain. And given how closely the global economy is interconnected, a hit anywhere can quickly affect others on the other side of the world.

Even in the US, where vaccination rates are higher than in many other countries, Los Angeles County 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-19 has increased by nearly 20,000 to about 32,000 in the past two weeks. The vaccine campaign has hit a wall, with the average number of daily immunizations dropping to the lowest level since January, with cases rising in all 50 states.

That’s why markets are concerned, although reports show that the economy is still recovering at a fantastic pace and is widely expected to continue to grow. Any deterioration in virus trends threatens the high prices the stocks have reached in anticipation of the economy living up to those lofty predictions.

Financial markets have been showing signs of growing concern for some time, but the US equity market has remained largely resilient. The S&P 500 has only had two weeks of downs in the past eight weeks, and the last time it even had a 5% pullback from a record high was in October.

Several analysts pointed to that backdrop of high prices and very quiescent moves over weeks as they parse Monday’s decline.

“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 relapse, it becomes extremely vulnerable to any kind of bad news,” Randy Frederick said. , vice president of trading & 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 concerns about the delta variant.

He and other analysts are optimistic that stocks could recover quickly. Investors have recently been trained to view any dip in stocks as just an opportunity to buy low.

Barry Bannister, chief equity strategist at Stifel, was more pessimistic. He says the stock market could be in early stages of a 10% drop after the big surge in prices. The S&P 500 nearly doubled after bottoming out in March 2020.

“The valuations, they just got too frothy,” he said. “There was just so much optimism.”

The bond market is louder and more persistent in its warnings. The 10-year government bond yield is moving in line with expectations for economic growth and inflation, and has been declining since late March, when it stood at around 1.75%. It fell to 1.19% Monday from 1.29% late Friday.

Analysts and professional investors say a long list of reasons may be behind the sharp moves in the bond market, which is considered more rational and down-to-earth than the stock market. But the core is the risk that the economy will slow down sharply after the current, extremely high growth.

In addition to the new strains of the coronavirus, there are other risks to the economy, including dwindling efforts for pandemic aid from the US government and a Federal Reserve expected to cut its aid to markets later this year.

Monday’s selling pressure was widespread, with nearly 95% of shares in the S&P 500 lower. Even Big Tech stocks fell, with Apple falling 3% and Microsoft falling 1.6%. Such stocks seemed almost immune to virus fears during past recessions, and rose on expectations that they will continue to grow, almost regardless of the strength of the economy.

Even companies that reported strong earnings growth were dragged into the downdraft. Tractor Supply, for example, said its quarterly earnings and sales beat Wall Street expectations, but its stock fell 4.5%.

Across the S&P 500, analysts predict earnings growth of nearly 70% for the second quarter from a year earlier. That would be the strongest growth since 2009, when the economy climbed out of the Great Recession.

But just as concerns mount that the economy’s growth has already peaked, analysts are trying to picture how much growth rates will slow for corporate profits in the coming quarters and years.

____

AP Business Writer Yuri Kageyama contributed.