Monday’s market diagnosed with COVID-19 anxiety

The market rally in the first half of 2021 which was fueled by growing optimism surrounding the rebound in economic growth has dwindled, as U.S. stocks, treasuries, and oil prices fell on Monday. The drop indicates growing fears plaguing investors about the tenacity of the global economic recovery.

The Dow Jones Industrial Average recorded its steepest decline since October, as it fell 725.81 points, or 2.1%, to 33962.04. Airlines, material, transport companies, and chemical stocks, which are essential for economic recovery, experienced heavy losses. 

American Airlines Group, United Airlines, Royal Caribbean Cruises, Norwegian Cruise Line, and Carnival corp all lost between 4.5% and 5.7%.

US banks' stocks have fallen 14% from a June high. Increasing loans offered by banks indicates an expansion in the economy.

Meanwhile, safer bets like Treasuries have seen prices surge and yields fall as investors scramble for put options to protect themselves against falling stock prices. The yield on the 10-year U.S. Treasury note sank to 1.2%, its lowest level since February. 

Oil prices plummeted as the Organization of Petroleum Exporting Countries and a group of major producers led by Russia (OPEC+) agreed to increase output. Brent crude futures, the worldwide benchmark, ended the day down 6.8%, at $68.62 a barrel. Overall, U.S. crude futures tumbled 7.5% to $66.42 a barrel, recording their worst day since early September. The decline was driven by fears about the Delta variant halting travel and crimping demand for fuel.

Rising infection rates in the US as the Delta coronavirus variant spreads rapidly, raise the risk that new restrictions may need to be reintroduced to prevent overwhelming healthcare services. 

The Fed stated that the reopening of the economy triggered a surge in demand leading to inflation. Strained global supply chains, disrupted by the pandemic, are making it difficult for businesses to access enough supplies on time or at reasonable prices, leading to higher import prices. The stagnant unemployment rate has raised concerns surrounding labor shortages threatening economic growth.

The geopolitical tensions between Beijing and Washington have majorly affected tech companies, putting pressure on trillions of dollars worth of U.S.-listed Chinese companies. The US Commerce Department recently added 10 more Chinese companies to an existing list of 59 companies to its economic blacklist over alleged human rights violations in Xinjiang. 

Despite these tensions, analysts believe that growth will continue, even though the rate cannot be predicted amidst the current volatility. Wall Street Journal’s economists believe the pace of U.S. growth in 2021 peaked in the spring and will moderate to 6.9% for 2021 as a whole before cooling to 3.2% in 2022 and 2.3% in 2023. These figures have triggered big moves among stocks and sectors within the S&P 500 as well as across the bond market.

The fall in yields weighs on the discount rate in formulas used to estimate stock prices, making future corporate earnings more valuable. This has benefitted the technology behemoths such as Apple, Amazon, and Microsoft, even as many other parts of the market have floundered. The tech-heavy NASDAQ Composite outperformed its peers on Monday with stocks such as Peloton Interactive surged 7.1%, while Slack Technologies Inc. added 1%.

 

(Inputs from Wall Street Journal)

Picture Credits: Bloomberg