U.S. stocks fell aggressively Monday on concern a rebound in Covid cases would slow global economic growth. The selling picked up as the session went on and the Dow Jones Industrial Average was headed for its biggest drop since last October.
The Dow dropped 927 points, or 2.7%, exceeding a 2% decline in late January. The S&P 500 fell 1.9% with energy and industrial sectors as the worst performers. The tech-dominated Nasdaq Composite lost 1.3%. The small-cap Russell 2000 dropped 1.9%, recovering after it briefly dropped into correction territory on an intraday basis – down more than 10% from its March high.
The 10-year Treasury yield fell to a new five-month low of 1.177%, exacerbating fears about the slowing economy. Crude oil dropped 8%.
“You have two concerns coming together… concerns about market technicals and concerns about growth,” Mohamed El-Erian, chief economic adviser of Allianz and former co-CEO of Pimco, told CNBC’s “Squawk Box” on Monday. “That’s what all the asset classes are telling you.”
Covid cases have rebounded in the U.S. this month with the delta variant spreading among the unvaccinated. The U.S. is averaging nearly 30,000 new cases a day in the last seven days ending Friday, up from a seven-day average of around 11,000 cases a day a month ago, according to CDC data. Cases were already flaring up around the world because of the delta variant.
The Cboe Volatility Index surged 6 points to as high as 24.8 amid the broad market sell-off, hitting the highest level since May. The so-called fear gauge looks at prices of options on the S&P 500 to track the level of fear on Wall Street.
Airlines got hit as investors reassessed whether travel among consumers would live up to high expectations, with shares of United, Delta and American sinking more than 5%.
Key stocks linked to global economic growth also fell. Boeing shed 5%, and General Motors and Caterpillar dropped more than 2%.
“The market appears ready to take on a more defensive character as we experience a meaningful deceleration in earnings and economic growth,” Morgan Stanley chief U.S. equity strategist Mike Wilson said in a note Monday. “Market breadth has been deteriorating for months and is just another confirmation of the mid-cycle transition, in our view. It usually ends with a material (10-20%) index level correction.”
Wilson is advising clients to buy staples such as Mondelez International to weather the decline.
Oil prices fell on fears of slowing growth and as OPEC+ agreed to begin phasing out production cuts. Energy stocks were among the worst performers , with with ConocoPhillips off by more than 3%. Exxon Mobil lost 3%. WTI crude shed 7.8% to $66.26 a barrel. The Energy Select Sector SPDR lost 4% for the worst performance among the 11 sectors.
The Financial Select Sector SPDR was the second-worst performer, down 3% as falling yields crimped the profitability outlook for banks. JPMorgan and Bank of America each dropped about 2.5%.
Market breadth was extremely poor with advancers beating decliners on the NYSE by nearly 7-to-one. Big Tech shares were not immune to the sell-off with Apple and Alphabet each down more than 2%.
Despite Monday’s decline, the overall damage to the market remains tame at the moment. The S&P 500 is still just 3.5% below its record reached last week and investors are hoping more better-than-expected earnings results will put a bottom under the market.
Billionaire investor Bill Ackman said Monday that the spread of the delta variant doesn’t pose a significant threat to the economic reopening as it could speed the pace to herd immunity.
“I hope what it does is that it motivates anyone who doesn’t get the vaccine to get the vaccine. I don’t think it’s going to change behavior to a great extent,” Ackman said on “Squawk Box.” “You are going to see a massive, my view, economic boom. … We are going to have an extremely strong economy coming in the fall.”
A busy week of earnings is on deck, with nine Dow components set to report and 76 S&P companies will provide quarterly updates. United and American Airlines will report, as will social media companies Snap and Twitter. CSX, Johnson & Johnson, Coca-Cola, Honeywell, IBM, Intel and Netflix are also on the docket.
— CNBC’s Yun Li, Jeff Cox and Michael Bloom contributed reporting
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