One minute the virus isn’t a problem, when it is – then it is a problem, when it isn’t! What the hell? (As far as the stock market is concerned)

Fearful

Stocks tumble on delta variant fears

Stock markets took a hit Monday 19th July 2021, as the headlines read, ‘Dow tumbles 900 points on concern of a Covid rebound‘. Is Covid entirely to blame for this fall? No, not entirely.

Fickle highs?

So, why now, after all – the virus hasn’t bothered stocks since the massive fall in March 2020 – as stock momentum and economic recovery went into overdrive and pushed the Dow, S&P 500 and Nasdaq to new record highs.

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 was headed for its biggest drop since last October.

The Dow at one point fell around 920 points. The S&P 500 fell 1.9% with industrials and energy sectors the worst performers. The Nasdaq lost 1.3% and the the 10 year U.S. Treasury yield fell to 1.18%, exacerbating fears about the slowing economy. Crude oil dropped 8%.

Indices ended the day down

FTSE 100 ended down at: 6844

DAX fell to: 15133 All main European stocks fell

Dow fell 726 points to closed down at: 33962

S&P 500 fell 69 points to close down at: 4258

Nasdaq fell 152 points to close at: 14275

Pressure on travel stocks remain

Fears of renewed travel restrictions and the further spread of virus variant, particularly among the unvaccinated, put pressure on travel related stocks and other industries and sectors that had previously benefited on cyclical companies expected to gain the most from economic reopening.

So, if we believe the headlines, and we usually do, the main economic worry now is the mutated delta strain of the virus restricting global growth? Granted – it’s part of it, but it’s not the whole picture. The virus is not the main culprit for this fall – but it is a major factor. Sentiment is always a factor too and inflationary fears are still a worry.

Inflation and interest rates?

What about inflation and interest rate hikes? And what about the concerns surrounding market technicals, concerns about growth and of analysts opinion that economies may have peaked? Especially in the U.S. economy. These concerns haven’t just vanished. We still have U.S. companies to report their earnings over the next two – three weeks – let’s then see where the markets go after that data is out.

Fear?

Fears of renewed travel restrictions and the increasing spread of the highly transmissible variant, particularly among the unvaccinated has put immense pressure on travel stocks and other industries and sectors that had previously been beneficiaries of bets on cyclical companies expecting to benefit from economic reopening.

Defensive

The market appears ready to take on more of a defensive stance as we will likely experience a deceleration in earnings and economic growth. Analysts have suggested that market breadth has been deteriorating for months and this is just another confirmation of a cycle transition. It usually ends with a correction – maybe 10% – 15% fall is coming?

How bad was the damage?

Despite Monday’s decline, the overall damage to the market remains tame… at the moment. The S&P 500 is still just 3.5% below its record reached last week and investors are anticipating that better than expected earnings results will put a bottom under the market.

Maybe the spread of the delta variant doesn’t pose a significant threat to the economic reopening as it could even arguably speed the pace to herd immunity.

Expect more volatility !

Related posts

Leave a Comment