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Dow Falls Nearly 900 Points, Oil Drops as Delta Variant Sends Investors Into Bonds


Stocks, oil prices and government-bond yields slid Monday as anxiety mounted over the spread of the Delta coronavirus variant and its potential impact on the global economy.

The Dow Jones Industrial Average slumped 876 points, or 2.5%, in afternoon trading, putting the index on track for its worst one-day drop in point terms since October.

The S&P 500 fell 2%, while the technology-heavy Nasdaq Composite declined 1.3%. Monday’s losses marked an acceleration after U.S. stock indexes retreated last week, snapping a three-week winning streak.

Investors sheltered in the safety of government bonds. The yield on 10-year Treasury notes fell to 1.182%—its lowest level since February—from 1.30% Friday. Bond yields fall when bond prices climb.

Oil prices fell after the Organization of the Petroleum Exporting Countries and a Russia-led group of big producers agreed to raise production. Futures on Brent crude, the international benchmark, tumbled 6.7% to $68.68 a barrel, their lowest level in more than six weeks.

The moves were reminiscent of trading patterns that prevailed in the early days of the pandemic. Investors sold shares of companies directly affected by restrictions on movement and business, while buying government bonds and stocks that stood to benefit from renewed lockdowns.

American Airlines Group,


AAL -4.51%

United Airlines

and cruise operator

Carnival

were all down at least 4.5%. Energy producers

Marathon Oil

and

Occidental Petroleum


OXY -5.09%

both tumbled more than 5%.

Stocks that climbed included supermarket-chain

Kroger,


KR 3.71%

which rose 3.4%, and online-crafts marketplace

Etsy,


ETSY 2.80%

which was up 2.8%.

Surging cases of the coronavirus in many parts of the world, including highly vaccinated countries such as the U.K., have prompted investors to dial down their expectations of economic growth in the coming months. Last week, some of California’s most populous counties either reimposed mask mandates or recommended wearing masks indoors to fight the Delta variant.

“The emergence of this more highly transmissible Delta variant…has brought into the question the sustainability of this reopening and the recovery,” said

Candice Bangsund,

a portfolio manager at Fiera Capital. Still, she said the variant would delay rather than derail a big pickup in economic activity and called the selloff a chance to scoop up shares of energy producers, industrial firms and financial companies.

The inflation rate reached a 13-year high recently, triggering a debate about whether the U.S. is entering an inflationary period similar to the 1970s.

Despite Monday’s selloff, the S&P 500 is up more than 12% this year and closed at a record just one week ago.

“The market has been due for a pause or pullback or, dare I say it, a correction,” said Hans Olsen, chief investment officer of Fiduciary Trust.

Some investors also are concerned that rising prices will pinch consumption and prompt central banks to withdraw stimulus, creating an environment of lower growth and higher inflation in which stocks tend to struggle.

Inflation accelerated to a 13-year high in the U.S. in June. Some evidence suggests that the price increases have started to knock consumers’ confidence in their ability to keep spending. For much of 2021, business reopenings, rising vaccination rates and government pandemic aid have helped propel rapid gains in consumer spending, the economy’s main driver.

“What you’re seeing is a sense that the consumer is starting to be affected quite significantly” by the jump in prices, said

Sebastien Galy,

senior macro strategist at Nordea Asset Management.

All 11 sectors of the S&P 500 dropped Monday. Energy and financials were the worst-performing groups.

One bright spot was

Five9,


FIVN 6.13%

which jumped 4.8% on news that

Zoom Video Communications


ZM -2.43%

plans to buy the provider of cloud-based customer-service software in a deal valuing the firm at $14.7 billion. Zoom shares shed 4.1%.

The National Bureau of Economic Research said Monday that the U.S. officially climbed out of a recession in April 2020. The pandemic-driven recession was two months long, making it the shortest on record, according to the bureau, the official arbiter of U.S. recession dates.

Looking ahead, investors will be monitoring corporate earnings this week for signs of how companies are faring amid the revival of economic activity. Air carriers American and United are among the hundreds of companies set to report quarterly results this week, along with

Intel,


INTC -1.08%

Netflix


NFLX -0.15%

and

Chipotle Mexican Grill.


CMG -1.45%

Overseas, major stock markets retreated amid fears of the Delta variant. The Stoxx Europe 600 slid 2.3%, dragged down by shares of travel, leisure and commodities companies, as well as banks.

In Asia, technology giants

Alibaba

and

Tencent

weighed on Hong Kong’s Hang Seng Index, which fell 1.8%.

Surging Covid-19 cases in many parts of the world have prompted investors to dial down economic growth expectations.



Photo:

Richard Drew/Associated Press

Japan’s Nikkei 225 dropped 1.3%. More athletes and staff members attending the Tokyo Olympics have tested positive, while cases are surging in Indonesia. Sydney, Australia’s most populous city, is under lockdown because of a Delta outbreak.

David Chao, a market strategist at Invesco, said the spread of the Delta variant across Asia, coupled with low vaccination rates and expectations of additional social-distancing measures, has “taken wind out of the sail for many investors expecting an economic rebound” in the region.

Mr. Chao said he expected investors to continue to pull funds out of Asian stocks and shift them to shares in developed markets with high inoculation rates, such as the U.S. and U.K.

Write to Joe Wallace at [email protected], Alexander Osipovich at [email protected] and Frances Yoon at [email protected]

Copyright ©2021 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8



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Stock-market futures slip, bond yields pop near 1% amid razor-thin Georgia races


Wall Street had Georgia squarely on its mind Tuesday night, with equity futures and bonds mostly in the crosshairs as investors eyed dual contests for key Senate seats coming down to razor-thin margins in early returns.

MarketWatch’s Victor Reklaitis reported that analysts are describing the Georgia races as “about as close as you can get,” and there are expectations that the winners won’t be declared until Wednesday morning.

At last check, tallies from populous Democratic-leaning counties, particularly in Dekalb, which could swing the vote tally, were looming.

Democratic challenger Jon Ossoff was trailing incumbent Republican Sen. David Perdue, with over 90% of the vote counted, after enjoying a handy lead earlier, according to data aggregated by the Associated Press.

In the other runoff, Democrat Raphael Warnock was also running slightly behind against incumbent GOP Sen. Kelly Loeffler.

The Senate races are runoffs from the November general election, when none of the candidates hit the 50% threshold required to be declared winner.

At stake for the markets is the prospect of a slim Democratic majority in the Senate if candidates can upend GOP incumbents.

Senate Republicans, if either Loeffler or Perdue wins Tuesday night, can be expected to block further coronavirus relief legislation and crimp any Democratic plans for expansive spending after President-elect Joe Biden takes office, experts said.

A Democratic sweep in Georgia, however, would give that party virtual control of that chamber because Vice President–elect Kamala Harris would cast tiebreaking votes as the chamber’s president.

Futures for the S&P 500 index
ESH21,
-0.64%

ES00,
-0.64%

were off 0.7%, while those for the Dow Jones Industrial Average
YMH21,
-0.24%

YM00,
-0.24%

were 0.3% lower, and Nasdaq-100 futures
NQH21,
-1.34%

NQ00,
-1.34%

were off 1.3% late Tuesday.

In the regular session, the Dow
DJIA,
+0.55%
,
S&P 500 index
SPX,
+0.71%

and the Nasdaq Composite Index
COMP,
+0.95%

finished the session solidly higher ahead of the political face-offs.

However, some of the biggest moves were emanating from the bond market, with the 10-year Treasury yield
TMUBMUSD10Y,
1.000%

knocking on the door of 1%, at around 0.985%, as prices fell, after rates finished at 0.955%, marking its highest 3 p.m. Eastern close since Dec. 4, according to Dow Jones Market Data. The 30-year Treasury bond
TMUBMUSD30Y,
1.762%

also was up nearly 4 basis points yielding 1.744% vs. an afternoon close at 1.705%, also its highest rate in a month.

For the bond market, Democratic wins could add to the bearish pressure on Treasurys as analysts say inflation expectations have risen in response as Congress may be more inclined to pass additional fiscal spending measures with a majority, which would weigh on bond prices, dragging yields up.

“It looks like a couple of the larger democratic counties haven’t been totally counted yet so my belief is this may very well swing to the Democrats,” Tom di Galoma, managing director of Treasurys trading at Seaport Global Securities, told MarketWatch.

“If that does happen rates will continue to rise over the next few days. We could very well see 10yr yields near 1.2% shortly,” he wrote.

It is nearly impossible to surmise what outcome Wall Street deems is best suited to push stocks further higher in 2021. Last year, market participants had been wagering that a Biden presidential victory, coupled with Democrats achieving a majority in the Senate, would provide the best scenario for additional financial relief measures to help sustain the economy’s recovery from the Covid-19 pandemic.

However, a blue wave failed to manifest and markets surged into the final weeks of 2020 regardless.



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