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

4:47 pm ET July 19, 2021 (MarketWatch)
Print

By Joy Wiltermuth and William Watts

Nasdaq Composite falls 5th day in a row, as Treasury yields plunge

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.

How did major indexes fare?

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 (https://www.marketwatch.com/story/what-to-expect-if-peak-everything-already-has-happened-and-markets-feel-the-force-of-gravity-again-11625262358)" 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 (https://www.marketwatch.com/story/biden-administration-blames-china-for-microsoft-exchange-email-hack-01626702062) 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 (https://www.nytimes.com/2021/07/19/climate/democrats-border-carbon-tax.html).

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 (https://www.marketwatch.com/story/energy-sector-tracker-suffers-unanimous-selloff-as-crude-futures-tumble-2021-07-19?mod=newsviewer_click) 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 settled below $67 a barrel (https://www.marketwatch.com/story/oil-prices-tumble-under-70-a-barrel-after-opec-reaches-production-deal-11626695936?mod=markets)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 (https://www.marketwatch.com/story/10-year-treasury-yield-slides-to-5-month-low-below-1-23-11626695866), which move in the opposite direction of prices. The yield on the 10-year Treasury note 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 (https://www.marketwatch.com/story/delta-variant-will-be-most-serious-virus-the-unvaccinated-ever-get-says-ex-fda-head-gottlieb-11626710657?mod=mw_latestnews)

The American Academy of Pediatrics (https://services.aap.org/en/news-room/news-releases/aap/2021/american-academy-of-pediatrics-updates-recommendations-for-opening-schools-in-fall-2021/#.YPWK3qz5Ur4.twitter) 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.(GOOGL) also said it was "strongly encouraging" (https://www.marketwatch.com/story/google-strongly-encourages-returning-employees-to-wear-masks-at-offices-2021-07-19?mod=mw_latestnews) 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 (https://www.marketwatch.com/story/why-a-bond-rally-could-drive-the-10-year-treasury-yield-lower-still-even-as-inflation-expectations-become-unmoored-11626719580?mod=newsviewer_click)

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 (https://www.marketwatch.com/story/what-does-a-mature-streaming-service-look-like-netflix-is-about-to-show-us-11626552249)

Meanwhile, the National Association of Home Builders said its monthly confidence index fell one point (https://www.marketwatch.com/story/airline-stocks-suffer-broad-selloff-as-surge-in-delta-variant-stokes-fears-of-potential-travel-restrictions-2021-07-19) to a reading of 80 in July.

Which companies were in focus?

What did other markets do?

-Joy Wiltermuth ; 415-439-6400; AskNewswires@dowjones.com

	

(END) Dow Jones Newswires

July 19, 2021 16:47 ET (20:47 GMT)

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