(Bloomberg) — U.S. stocks dropped from record highs amid growing anxiety that the spread of Covid-19 variants will upend growth expectations, undoing popular reflation trades. Bonds rallied.
The benchmark S&P 500 declined more than 1% Thursday after setting all-time closing highs in eight of the last nine trading sessions. European and Asian equity benchmarks slumped. U.S. 30-year Treasury yields fell below 1.90% for the first time since February as inflation expectations eased.
Traders are getting edgy over whether the rapid spread of the delta strain will knock back growth and prospects for central bank normalization.
“Many of the stocks got way ahead of themselves, especially in energy and financials,” said Chris Grisanti, chief equity strategist at MAI Capital Management. “Investors have to be careful to separate the economy from the stock market.”
Central bank stimulus plans remain critical to the market outlook. While the Federal Reserve mulls the timetable for tapering $120 billion in monthly bond purchases, the European Central Bank stands ready to extend ultra-loose policy. In the culmination of an 18-month review published Thursday, ECB policy makers raised their inflation target to 2% and said they would tolerate moderate overshoots.
“The message markets are sending is that the economic situation is not strong enough to pull back on stimulus and start the tapering process, as the Fed has signaled it will do,” said Ricardo Gil, head of asset allocation at Trea Asset Management in Madrid.
Oil declined as investors await further signals from the OPEC+ alliance on production plans after a breakdown in talks. Miners contributed the most to a decline in European stocks of more than 2%.
Meanwhile, the pandemic’s global death toll has surpassed 4 million as the delta variant spreads, and the World Health Organization urged caution on reopenings worldwide.
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Here are some events to watch this week:
The Group of 20 finance ministers and central bankers meet in Venice on FridayChina PPI and CPI data released on Friday
These are some of the main moves in markets:
Stocks
The S&P 500 fell 1.2% as of 9:33 a.m. New York timeThe Nasdaq 100 fell 1.4%The Dow Jones Industrial Average fell 1.1%The Stoxx Europe 600 fell 1.9%The MSCI World index fell 1.3%
Currencies
The Bloomberg Dollar Spot Index fell 0.2%The euro rose 0.6% to $1.1861The British pound fell 0.1% to $1.3782The Japanese yen rose 0.9% to 109.68 per dollar
Bonds
The yield on 10-year Treasuries declined two basis points to 1.30%Germany’s 10-year yield declined one basis point to -0.31%Britain’s 10-year yield was little changed at 0.59%
Commodities
West Texas Intermediate crude fell 0.5% to $71.86 a barrelGold futures rose 0.6% to $1,813.40 an ounce
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