Dow loses more than 900 points as fears of Delta variant hit stock market hard
This is shaping up to be the worst day for the Dow Jones since falling 943 points at the end of October. But the blue chip market barometer has seen several even larger drops since the start of 2020 due to concerns about the Covid-19 pandemic.
Investors feared the Delta coronavirus variant could threaten the U.S. economic recovery. The stocks of companies in sectors that were widely thought to benefit the most from the reopening of the economy are the hardest hit.
Long-term bond yields have also continued to fall, a sign that fixed income investors are now far more worried about an economic slowdown induced by the Delta variant than about rising inflation fears.
But as consumer prices continue to rise, some worry about a more insidious threat: the possibility that another Covid-19 outbreak could slow the economy even as inflationary pressures increase. This is a phenomenon known as stagflation.
“The fear of stagflation will be a major concern for investors if a resurgence in Covid infections causes economies to slow down as consumer prices continue to rise,” said Peter Essele, head of global management. investments for Commonwealth Financial Network, in an email.
Forty-eight states are now seeing the number of new cases increase by at least 10% from the previous week, according to data from Johns Hopkins University.
Stocks are still up sharply this year and from 2020 lows
Despite recent volatility, stocks are not far from record highs and are having a strong year.
The Dow Jones is still up more than 10% in 2021 and is only 3% below its all-time high. The S&P 500 has jumped 13% this year and is also only 3% off its record.
Additionally, the S&P 500 is up about 90% from its Covid-induced bear market lows in March 2020. Some strategists believe the recent sell-off presents an opportunity.
“We don’t expect a return to full closures in the US, so while the damage from the Delta variant may be significant, we are still in the ‘buy the drop’ camp,” Bryce Doty, portfolio manager senior at Sit Fixed Income Associates, said in a report Monday.