NEW YORK – Concerns about the resurgence of a pandemic caused Wall Street shares in Tokyo to fall on Monday, fueled by fears that a faster-spreading variant of the virus could upend the strong economic recovery.
The S&P 500 fell 68.67, or 1.6%, to 4,258.49, after setting a record a week earlier. Another sign of concern, the 10-year Treasury yield hit its lowest level in five months as investors scrambled to find safer places to put their money.
The Dow Jones Industrial Average fell 725.81, or 2.1%, to 33,962.04, while the Nasdaq composite fell 152.25, or 1.1%, to 14,274.98.
Airlines and other businesses that would be most affected by potential COVID-19 restrictions suffered some of the heaviest losses, similar to the early days of the pandemic in February and March 2020. United Airlines lost 5.5% , mall owner Simon Property Group dropped 5.9% and cruise line Carnival fell 5.7%.
The sale also went around the world, with several European markets sinking by around 2.5% and Asian indices a little less. The benchmark US crude price, meanwhile, fell more than 7% after OPEC and allies agreed on Sunday to possibly allow higher oil production this year.
The increased concerns about the virus may seem strange to people in parts of the world where masks come off, or have already done, thanks to COVID-19 vaccinations. But the World Health Organization says cases and deaths are increasing globally after a period of decline, spurred by the highly contagious delta variant. And given how tightly connected the global economy is, a blow anywhere can quickly affect the other side of the world.
Even in the United States, where the vaccination rate is higher than in many other countries, residents of Los Angeles County are once again required to wear masks indoors, whether or not they are vaccinated as a result of peaks of cases, hospitalizations and deaths.
Nationwide, the daily number of COVID cases has climbed by nearly 20,000 in the past two weeks to around 32,000. The vaccination campaign has hit a wall, with the average number of daily vaccinations falling to its highest low since January, and cases are on the rise in all 50 states.
This is why the markets are worried, even though reports show that the economy is still recovering at an incredibly high rate and is generally expected to show continued growth. Any worsening virus trends threaten the high prices that the stocks have reached over expectations that the economy will achieve these high forecasts.
Financial markets have been showing signs of heightened concern for some time, but the US stock market has remained largely resilient. The S&P 500 has only seen two weeks of decline in the past eight, and the last time it even fell 5% from a record high was in October.
Several analysts have underlined this context of high prices and very calm movements for weeks while dissecting the drop on Monday.
“It’s a bit of an overreaction, but when you have a market that’s hitting record highs, that’s had the kind of run we’ve had, with virtually no hindsight, it becomes extremely vulnerable to all kinds of bad news.” said Randy Frederick, vice president of trading and derivatives at Charles Schwab. “It was just a question of what that tipping point was, and it looks like we finally hit it this morning” with concerns about the delta variant.
He and other analysts are bullish stocks can rebound quickly. Investors have been trained recently to view every drop in stocks as just an opportunity to buy low.
Barry Bannister, chief equity strategist at Stifel, was more pessimistic. He says the stock market may be in its early stages for a decline of up to 10% after its sharp rise. The S&P 500 nearly doubled after hitting its low in March 2020.
“Valuations have gotten too frothy,” he said. “There was so much optimism. “
The bond market has been louder and more persistent in its warnings. The 10-year Treasury yield tends to move with expectations of economic growth and inflation, and has been declining since the end of March, when it stood at around 1.75%. It fell to 1.20% on Monday from 1.29% on Friday night.
Analysts and professional investors say that a long list of potential reasons is behind the sudden movements in the bond market, seen as more rational and sober than the stock market. But at the heart is the risk that the economy will have to slow down sharply from its current extremely high growth.
Along with new variants of the coronavirus, other risks to the economy include dwindling pandemic relief efforts from the US government and a Federal Reserve which is expected to start cutting aid to markets later this year.
Monday’s selling pressure was widespread, with nearly 90% of S&P 500 stocks falling. Even Big Tech stocks fell, Apple down 2.7% and Microsoft down 1.3%. These stocks seemed almost immune to virus fears in previous downturns, rising with expectations of continued growth almost regardless of the strength of the economy.
Across the S&P 500 as a whole, analysts are forecasting earnings growth of nearly 70% for the second quarter from a year ago. It would be the strongest growth since 2009, when the economy was emerging from the Great Recession.
But just as concerns grow that the economy’s growth has already peaked, analysts are trying to limit slowing growth rates over the next few quarters and years for corporate earnings.
AP Business Writer Yuri Kageyama contributed.