Dow tumbles 900 points as spread of delta variant, global tensions rattle investors

What’s driving the market?

Pressure on global equity markets Monday was attributed largely to the continued rise in the number of COVID-19 cases worldwide, but also to concerns about “peak everything” and to rising U.S. and China tensions.

“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 told MarketWatch.

“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 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.

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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. Airline stocks tumbled, with the industry-tracking U.S. Global Jets ETF JETS, -4.37% dropping more than 3.2%, while plane-maker Boeing Co. BA, -5.72%, a Dow component, dropped 5.4%, on fears the spread of the variant could trigger renewed travel restrictions.

Also Monday, Treasurys continued to rally, keeping pressure on yields, which move in the opposite direction of prices. The yield on the 10-year Treasury note TMUBMUSD10Y, 1.194% was down about 9 basis points to trade near 1.21%, after dipping below 1.19% for the first time since mid-February.

“Fears over peak economic data and a resurgence in COVID cases has the market on edge today,” Ryan Detrick, chief market strategist for LPL Financial, wrote in emailed comments. “Of course, don’t forget that the S&P 500 hasn’t had a 5% correction since October, so you could say we are more than due for some turbulence.”  

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.’”

The strategists said that the 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.

“In an attempt to divine this message, the market may dismiss future better-than-expected EPS (earnings per share) growth as symptomatic of the transition from the windward to the leeward slope of the current EPS cycle as it passes its peak, resulting in increased volatility,” Stovall said.

Read: Does the bond market have it wrong about inflation?

Earnings season picks up steam this week, with nearly a third of the 30 Dow Jones Industrial Average 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, -0.33% on Tuesday and Intel Corp. INTC, -1.35% on Thursday.

Earnings Preview: What does a mature streaming service look like? Netflix is about to show us

Oil prices were sliding, with the U.S. benchmark CL00, -7.28% down 6.8% to trade near $66.74 a barrel after the Organization of the Petroleum Exporting Countries and its allies, a group known as OPEC+, agreed on Sunday to a deal that will ease output curbs. 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 said the extended slide, however, was likely due more to concerns about the delta variant and a widespread selloff across assets perceived as risky than the OPEC+ decision.

Meanwhile, the National Association of Home Builders said its monthly confidence index fell one point to a reading of 80 in July.

Which companies are in focus?

• Robinhood Markets Inc. HOOD, set terms for its initial public offering, in which the California-based retail trading platform could be valued at up to $35.1 billion.
• AutoNation Inc. AN, +1.96% on Monday second-quarter quarter profit and revenue that easily topped expectations, with particular strength in used car sales. Shares were up 4.7%.
• Shares of Five9 Inc. FIVN, +4.80% rose 5.1%, after the announcement of a $14.7 billion all-stock buyout deal by Zoom Video Communications Inc. ZM, over the weekend. Zoom shares slumped 4.4%.
• Bill Ackman’s Pershing Square Tontine Holdings PSTH, -1.08% said Monday that it was abandoning a deal to buy a 10% stake in Universal Music Group, citing regulatory and shareholder concerns. PSTH shares were down 1.1%.
• Cal-Maine Foods Inc. CALM, -5.58%  reported Monday a surprise fiscal fourth-quarter loss and revenue that fell below expectations, with egg sales dropping as the lifting of COVID-19-related restrictions led to less meals prepared at home. Shares were down 5.5%.

What are other markets doing?

• The ICE U.S. Dollar Index DXY, +0.18%, a measure of the currency against a basket of six major rivals, rose 0.1%.
• Gold futures GC00, -0.34% were down 0.4% near $1,807.80 an ounce.
• In European equities, the Stoxx Europe 600 SXXP, -2.30% closed down 2.3%, its largest one-day percent drop since Dec. 2020, while London’s FTSE 100 UKX, -2.34% slumped 2.3%.
• In Asia, the Shanghai Composite SHCOMP, -0.01% fell fractionally, while the Hang Seng Index HSI, -1.84% shed 1.8% and Japan’s Nikkei 225 NIK, -1.25% dropped 1.3%.