Dow Jones dips 2% as virus surge stifles recovery hopes

Dow Jones dips 2% as virus surge stifles recovery hopes

The Dow sank more than 2 per cent on Monday as investors sold off economically sensitive shares and travel stocks and sought the perceived safety of bonds on fears that a spike in Covid-19 cases would derail a broader economic recovery.New infections surged in parts of Asia and England, while U.S. COVID-19 cases soared 70 per cent last week, fueled by the Delta variant.All 11 S&P sectors fell, with the so-called value stocks, including financial, industrial, materials and energy, dropping between 2.0 per cent and 3.9 per cent.The banking sub-index sank 3 per cent, tracking a fall in the benchmark 10-year Treasury yield to mid-February lows.“There’s concern among investors the Delta variant could reset the clock in terms of the progress we’ve made with COVID-19 and the pickup in the economy,” said Andre Bakhos, managing director at New Vines Capital LLC in New Jersey.The benchmark S&P 500 snapped a three-week winning streak on Friday, with only defensive sectors, perceived to be relatively safe during times of economic uncertainty, posting small gains.On Monday, the technology-heavy Nasdaq index outperformed the broader market as investors again flocked to the growth-linked stocks that led Wall Street ’s recovery from its coronavirus-lows last year.“This is a way for investors to hedge the risk of COVID-19,” said Max Gokhman, head of asset allocation at Pacific Life Fund Advisors in Newport Beach, California.“We know the tech stocks will tend to do better when there’s less stability, as they are less sensitive to consumers increasing their spending on services and going out.“Still, by 12:07 p.m. ET, the Nasdaq Composite was down 1.14 per cent.By comparison, the Dow Jones Industrial Average sank 815.67 points, or 2.35 per cent, and was on track for its worst session since October 2020, while the S&P 500 slipped 1.72 per cent and was set for its biggest one-day percentage fall since May.Economically sensitive small caps and transports were down 0.7 per cent and 1.6 per cent respectively.The CBOE volatility index, dubbed Wall Street’s fear gauge, jumped to a two-month high.Shares of travel-related companies, which had just begun to climb after suffering steep losses during pandemic-driven lockdowns last year, fell again on Monday. The S&P 500 Airlines sub index slumped 2.9 per cent.Cruiseliners Royal Caribbean Group, Carnival Corp and Norwegian Cruise Line dropped more than 2.9 per cent.After strong quarterly reports from big banks last week, focus now shifts to tech earnings with companies including IBM , Netflix, Texas Instruments and Intel set to report this week.U.S.-listed shares of Alibaba Holding, Baidu and ridesharing app Didi Global declined between 2.3 per cent and 7.3 per cent on renewed fears of anti-monopoly action against major technology firms.Zoom Video Communications Inc slipped 4.2 per cent after the teleconferencing services provider announced a $14.7 billion all-stock deal to buy cloud-based call center operator Five9 Inc .Five9’s shares jumped 5 per cent.Declining issues outnumbered advancers 5.37-to-1 on the NYSE and 2.29-to-1 on the Nasdaq.The S&P index recorded 12 new 52-week highs and no new low, while the Nasdaq recorded 17 new highs and 231 new lows.

Dow tumbles 700 points for its worst drop since October as investors fear a Covid resurgence

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U.S. stocks fell aggressively Monday on concern a rebound in Covid cases would slow global economic growth. The selling picked up as the session went on, and the Dow Jones Industrial Average had its worst day since last October.

The Dow dropped 725.81 points, or 2.1%, to 33,962.04 in a broad-based rout that sent all 30 members lower. At one point during the session, the Dow was down 946 points before recovering some ground into the close. The S&P 500 fell 1.6% to 4,258.49. Energy, financials and industrials were the worst-performing sectors. The tech-dominated Nasdaq Composite slid 1.1% to 14,274.98, posting its fifth-straight day of losses and worst losing streak since October. The 10-year Treasury yield reached a five-month low of 1.17%, exacerbating fears about the slowing economy. The small-cap Russell 2000 dropped 1.5% and briefly dipped into correction territory on an intraday basis - down more than 10% from its March high. “You have two concerns coming together … concerns about market technicals and concerns about growth,” Allianz chief economic advisor Mohamed El-Erian told CNBC’s “Squawk Box” on Monday. “That’s what all the asset classes are telling you.”

Covid cases have rebounded in the U.S. this month, with the delta variant spreading among the unvaccinated. The U.S. is averaging nearly 26,000 new cases a day in the last seven days through Sunday, up from a seven-day average of around 11,000 cases a day a month ago, according to CDC data. Cases were already flaring up around the world because of the delta variant. The Cboe Volatility Index surged as high as 25 amid the broad market sell-off, its highest level since May. The so-called fear gauge looks at prices of options on the S&P 500 to track the level of fear on Wall Street.

Airlines got hit as investors reassessed whether travel among consumers would live up to high expectations, with shares of Delta and American sinking about 4% each. United lost 5%. Key stocks linked to global economic growth also fell. Boeing shed 5%, and General Motors and Caterpillar dropped about 2% each. “The market appears ready to take on a more defensive character as we experience a meaningful deceleration in earnings and economic growth,” Morgan Stanley chief U.S. equity strategist Mike Wilson said in a note Monday. “Market breadth has been deteriorating for months and is just another confirmation of the mid-cycle transition, in our view. It usually ends with a material (10-20%) index level correction.” Wilson advised clients to buy staples such as Mondelez International to weather the decline.

Oil prices fell on fears of slowing growth and as OPEC+ agreed to begin phasing out production cuts. Energy stocks were among the worst performers, with with ConocoPhillips off by more than 3%. Exxon Mobil also lost 3%. WTI crude shed 7.5% to settle at $66.42 a barrel. The Energy Select Sector SPDR lost 4% for the worst performance among the 11 sectors. The Financial Select Sector SPDR was the second-worst performer, down 2.8% as falling yields crimped the profitability outlook for banks. JPMorgan dropped 3.2%, and Bank of America fell 2.6%. Market breadth was extremely poor with advancers beating decliners on the NYSE by nearly 5-1. Big Tech shares were not immune to the sell-off, with Apple and Alphabet each down about 2%.

Dow books 725-point loss, worst day since October, as spread of delta variant and global tensions rattle investors

U.S. stocks closed sharply lower Monday, joining the selloff in global equities, as concerns grew about the spread of the delta variant of the coronavirus that causes COVID-19, and as tensions ratcheted up between the U.S. and China.

Stocks closed lower Friday, with all three major indexes down for the week, ending a string of three, consecutive weekly wins. The Dow saw a 0.5% weekly decline, while the S&P 500 slid 1% and the Nasdaq Composite shed 1.9%.

What drove the market?

U.S. stocks fell hard, but off the session’s worst levels, as COVID-19 cases rose world-wide and concerns about “peak everything” and rising U.S. and China tensions rattled investors.

“The delta variant is getting a lot of attention right now as an explanation for weakness,” said Sahak Manuelian, head of equity trading at Wedbush Securities in Los Angeles.

“Another good reason is really peak everything: peak valuations, peak growth,” he said. “Add in the delta variant and you have a decent case for why stocks are lower.”

“But the third thing, which might be the most troubling, is U.S.-China relations. They are certainly getting worse.”

The Biden administration on Monday blamed China for a hack of Microsoft Exchange email server software that compromised tens of thousands of computers around the world earlier this year. The European Union and Britain also pointed the finger at China.

Democratic senators also were expected to make public on Monday a plan to raise $14 billion annually by imposing taxes on China and other countries not significantly reducing emissions that warm the planet, the New York Times reported.

On the pandemic front, concerns about the virus have been particularly problematic for sectors and industries, such as travel, that were expected to benefit the most from the reopening of the global economy. The energy sector was the weakest of the S&P 500’s 11 key sectors Monday, ending down 3.6%, while the Energy Select Sector SPDR ETF XLE also fell 3.6%.

Crude-oil futures CL00 settled below $67 a barrel on Monday, their biggest daily percentage drop since March, following a weekend deal by the OPEC+ group to boost oil production. Major producers will add 400,000 barrels a day in production each month beginning in August until existing curbs totaling 5.8 million barrels a day are erased later next year.

Analysts, however, said the steep selloff in crude also reflected worries about the delta variant.

Airline stocks tumbled, with the industry-tracking U.S. Global Jets ETF JETS dropping 4.2%, while plane-maker Boeing Co. BA, a Dow component, tumbled 4.9%, on fears the spread of the variant could trigger renewed travel restrictions.

Also Monday, Treasurys continued to rally, keeping pressure on yields, which move in the opposite direction of prices. The yield on the 10-year Treasury note BX:TMUBMUSD10Y was down 11.9 basis points, dipping below 1.18% at its lows and deepening its decline to levels not seen since February, according to Dow Jones Market Data.

Sam Stovall, chief investment strategist at CFRA, in a note, said that in the week ahead, investors will likely regard a further weakening of bond yields as a potential ‘canary in the coal mine.'”

“There are all these different feedback loops going back into each other,” said Victoria Fernandez, chief market strategist at Crossmark Global Investments, speaking to fears that COVID restrictions could potentially be partially reinstated, which could then erode consumer confidence and dampen spending, just as output is set to rise again.

“The most concerning is that if restrictions are put back in place, what does that mean for the consumer?” Fernandez told MarketWatch. “We keep expecting spending on consumer services to boost us in the second half.”

Read: Delta variant will be the ‘most serious virus’ the unvaccinated ever get, says Ex-FDA head Gottlieb

The American Academy of Pediatrics said that everyone 2-years-old and up should wear masks, regardless of their vaccination status, as COVID cases climb and to make schools safer for students. Google parent Alphabet Inc. GOOG also said it was “strongly encouraging” all returning employees to “wear a mask inside Google property at all times, regardless of vaccination status, until further notice.”

Stovall said that bond yield declines could potentially overshadow earnings season, which has thus far been strong. About 85% of S&P 500 companies that have reported beating expectations and none providing guidance lower than expectations so far, according to John Butters, senior earnings analyst at FactSet.

Read: Why a bond rally could drive the 10-year Treasury yield lower still, even as inflation expectations become unmoored

Earnings season picks up steam this week, with nearly a third of the 30 Dow components and more than 80 S&P 500 companies are expected to report quarterly results.

Earnings highlights for the week ahead include Netflix Inc. NFLX on Tuesday and Intel Corp. INTC on Thursday.

Earnings Preview: What does a mature streaming service look like? Netflix is about to show us

Meanwhile, the National Association of Home Builders said its monthly confidence index fell one point to a reading of 80 in July.

Which companies were in focus?

Robinhood Markets Inc. HOOD set terms for its initial public offering, in which the California-based retail trading platform could be valued at up to $35.1 billion.

HOOD set terms for its initial public offering, in which the California-based retail trading platform could be valued at up to $35.1 billion. AutoNation Inc. AN on Monday second-quarter quarter profit and revenue that easily topped expectations, with particular strength in used car sales. Shares rose 3.7%.

AN on Monday second-quarter quarter profit and revenue that easily topped expectations, with particular strength in used car sales. Shares rose 3.7%. Shares of Five9 Inc. FIVN rose 5.9%, after the announcement of a $14.7 billion all-stock buyout deal by Zoom Video Communications Inc. ZM, over the weekend. Zoom shares slumped 2.2%.

FIVN rose 5.9%, after the announcement of a $14.7 billion all-stock buyout deal by ZM, over the weekend. Zoom shares slumped 2.2%. Bill Ackman’s Pershing Square Tontine Holdings PSTH said Monday that it was abandoning a deal to buy a 10% stake in Universal Music Group, citing regulatory and shareholder concerns. PSTH shares fell 1.2%.

PSTH said Monday that it was abandoning a deal to buy a 10% stake in Universal Music Group, citing regulatory and shareholder concerns. PSTH shares fell 1.2%. Cal-Maine Foods Inc. CALM reported Monday a surprise fiscal fourth-quarter loss and revenue that fell below expectations, with egg sales dropping as the lifting of COVID-19-related restrictions led to less meals prepared at home. Shares fell 3.8%.

What did other markets do?