U.S. stocks fell aggressively Monday on concern a rebound in Covid cases would slow global economic growth. The selling picked up though early afternoon and the Dow Jones Industrial Average was headed for its biggest drop of the year.
The Dow dropped 920 points, or 2.7%, exceeding a 2% decline in late January. The S&P 500 fell 2.1% with energy and industrial sectors as the worst performers. The tech-dominated Nasdaq Composite lost 1.5%. The small-cap Russell 2000 briefly dropped into correction territory, falling 10.7% from its 52-week high on March 15.
The 10-year Treasury yield fell to a new five-month low of 1.186%, exacerbating fears about the slowing economy. Crude oil dropped 7.5%.
“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” before Monday’s opening bell. “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 VIX looks at prices of options on the S&P 500 to track the level of fear on Wall Street.
Airlines got hit, with shares of United, Delta and American sinking more than 5%. Along with shares of cruise lines and airlines, key stocks linked to the global economy pulled back. Boeing fell 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 in the market, with with ConocoPhillips off by more than 3%. Exxon Mobil lost 3%. WTI crude shed 7.8% to $66.26 a barrel.
Banks took a hit as yields fell, crimping their profitability prospects. JPMorgan and Bank of America each dropped about 2.5%.
Big Tech shares were not immune to the sell-off with Apple and Alphabet each down more than 2%.
Yet certain defensive stocks gained amid the market sell-off. Walmart and Procter & Gamble shares traded into the green, along with many utilities stocks.
Despite Monday’s decline, the overall damage to the market remains tame. The S&P 500 is still just 3% below its record reached last week and investors are hoping more better-than-expected earnings results will put a bottom under the market.
“Today’s market drop felt unusually jolting after months of quiet markets,” said Lindsey Bell, chief investment strategist at Ally. “But there’s been a steady rotation into stay-at-home stocks over the past few weeks with economic growth worries replacing runaway inflation concerns. The Delta variant could be the straw that breaks the camel’s back.”
She added that the catalyst for selling “may be more of a pause in momentum than true concern over the outlook,” noting that stocks have been “unusually resilient” this year.
“Even in the middle of today’s ~2% drawdown, the S&P 500 has still gained about 13% year-to-date before dividends,” Goldman Sachs’ Chris Hussey said Monday. “That’s a terrific six-month return for a risk asset market operating amidst the uncertainty of a once-every-100-years pandemic and unprecedented fiscal and monetary spending support that carries with it inflation risks.”
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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