Stock futures rebound after the Dow suffers worst day since October

Business

CNBC 19 July, 2021 - 05:58pm 42 views

Stock futures climbed in overnight trading on Monday after concerns about the spread of Covid-19's delta variant sent investors dumping equities, especially those directly affected by pandemic restrictions.

Futures on the Dow Jones Industrial Average rebounded 80 points. S&P 500 futures gained 0.3% and Nasdaq 100 futures traded 0.4% higher.

Wall Street suffered a sharp sell-off during regular trading hours as investors feared that the fast-spreading delta coronavirus variant could hinder the economic recovery. The blue-chip Dow tumbled more than 700 points to post its worst day since October, while the S&P 500 fell 1.6% and the Nasdaq Composite dropped about 1.1%.

"Fear of stagflation will be a major concern for investors if a resurgence in COVID infections causes economies to slow while consumer prices continue an upward trajectory," said Peter Essele, head of investment management at Commonwealth Financial Network.

New Covid cases are rebounding in the U.S. as the delta variant spreads, largely among the unvaccinated. The U.S. is averaging about 26,000 daily cases in the last seven days, more than double the average from a month ago, according to CDC data

Shares that are directly tied to a successful reopening, such as airlines and cruise line operators, bore the brunt of the sell-off. Carnival and Norwegian Cruise Line dropped more than 5% each, while Royal Caribbean fell 4%. Shares of United Airlines dropped 5.5%.

Classic cyclical sectors energy and financials were the biggest losers, falling 3.6% and 2.8%, respectively. The 10-year Treasury yield tumbled as much as 12 basis points to 1.17%, its lowest level since February, intensifying fears of an economic slowdown.

Still, even after Monday's drop, the S&P 500 is just 3.1% below its record hit last week. Additionally, while the equity benchmark dipped below its 50-day moving average during Monday's rout, it ultimately closed above that key technical level, offering some hope to investors looking for a rebound.

"Many of the cyclical companies are selling off on fears that Covid will stop the recovery in its tracks," said Chris Zaccarelli, CIO at Independent Advisor Alliance. "We don't believe that that's the case and are willing to let the sell-off run its course and buy the dip on the belief that the economy will fully recover and return to its prior growth trajectory, bringing most of the cyclical companies in the airline, travel and leisure industries along with it."

IBM shares jumped 3% in extended trading Monday after the enterprise technology and services provider reported second-quarter results that topped expectations and showed its strongest revenue growth in three years.

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Dow plunges nearly 800 points over Indian Delta variant surge

Daily Mail 19 July, 2021 - 07:10pm

By Associated Press

Stocks sank on Monday with the Dow plunging nearly 800 points as investors feared a surge in COVID-19 cases caused by the Indian Delta variant could hold back the global economy. 

The Dow Jones Industrial Average was down 786 points, or 2.2 percent, as of midday EST.

The S&P 500 was 1.5 percent lower in midday trading, after setting a record just a week earlier 

The Nasdaq composite was 0.9 percent lower.  

In another sign of worry, the yield on the 10-year Treasury dropped close to its lowest level in five months. It touched 1.21 percent as investors scrambled for safer places to put their money. 

The Dow Jones Industrial Average was down 786 points, or 2.2%, as of midday ET

Stocks sank on Monday with the Dow plunging more than 600 points as investors feared a surge in COVID-19 cases caused by the Indian Delta variant could hold back the global economy

Airlines, hotels and stocks of other companies that would get hurt the most by potential COVID-19 restrictions were taking the heaviest losses, reminiscent of the early days of the pandemic in February and March 2020. 

Airline operators and cruiseliners including Southwest Airlines Co, Delta Air Lines Inc, United Airlines, American Airlines, Royal Caribbean Group, Carnival Corp and Norwegian Cruise Line dropped between 3.3 percent and 6.2 percent.  

Wall Street's main indexes closed lower on Friday, with investors moving into defensive sectors on concerns that a resurgence in COVID cases might delay a strong economic recovery and derail a sharp market rebound from 2020 lows.  

'Before the Delta variant started gaining traction, things were priced in for a very strong recovery,' said David Grecsek, managing director of investment strategy and research at Aspiriant in New York.

'What we're seeing here is any data or news that's going to upset that sort of serene, low volatility, and high corporate earnings, market is going to react to that. But you don't want to see excess speculation. Some correction is healthy.' 

The drop also circled the world, with several European markets down more than 2 percent, on worries new virus variants are dragging particularly hard on economies where vaccination rates are low.  

Stocks sank on Monday with the Dow plunging nearly 800 points. Pictured above is the five-day outlook

The S&P 500 fell 1.6% in the first half hour of trading, after setting a record high just a week ago

The Nasdaq composite was 1.5% lower

The price of benchmark U.S. crude, meanwhile, sank more than 5 percent after OPEC and allied nations agreed on Sunday to eventually allow for higher oil production this year.

Experts are saying Indonesia has become a new epicenter for the pandemic as outbreaks worsen across Southeast Asia. 

Meanwhile, some athletes have tested positive for COVID at Tokyo's Olympic Village, including a US gymnast, with the Games due to open Friday.

'The more transmissible delta variant is delaying the recovery for the ASEAN economies and pushing them further into the doldrums,' said Venkateswaran Lavanya, at Mizuho Bank in Singapore.

Even though vaccination rates are higher in the United States and some other developed economies, the tightly connected global economy means hits anywhere can quickly affect others on the other side of the world.

In Japan, the world's third-largest economy, the vaccine rollout came later than in other developed nations and has stagnated lately. Japan is totally dependent so far on imported vaccines, and just one in five Japanese have been fully vaccinated.

Financial markets have been showing signs of increased concerns for a while, but the U.S. stock market had remained largely resilient. The S&P 500 has had just two down weeks in the last eight.

The bond market has been louder in its warnings, though. The yield on the 10-year Treasury tends to move with expectations for economic growth and for inflation, and it has been sinking from a perch of roughly 1.75 percent in March. It was at 1.22 percent Monday morning, down from 1.29 percent late Friday.

Analysts and professional investors say a long list of reasons is potentially behind the sharp moves in the bond market, which is seen as more rational and sober than the stock market. But at the heart is the risk the economy may be set to slow sharply from its current, extremely high growth.

Besides the new variants of the coronavirus, other risks to the economy include fading pandemic relief efforts from the U.S. government and a Federal Reserve that looks set to begin paring back its assistance for markets later this year.

Worries about a possible sharp slowdown have particularly hurt stocks whose profits are most closely tied to the strength of the economy. Stocks of smaller companies, for example, have been scuffling since hitting a peak in March.

The Russell 2000 index of smaller stocks slumped 2.3 percent Monday, outpacing losses for their larger rivals on Wall Street.

In Europe, Germany's DAX lost 2.7 percent, and France's CAC 40 fell 2.6 percent. The FTSE 100 in London slumped 2.3 percent.

In Asia, Japan's Nikkei 225 lost 1.3 percent, Hong Kong's Hang Seng fell 1.8%, South Korea's Kospi dropped 1%. Australian stocks sank 0.9%.  

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Week Ahead: Will Investor Focus Shift To Earnings, Stimulus Or Fix On Data?

Investing.com 19 July, 2021 - 07:10pm

Despite solid results last week as earnings season ramped up, investors have been shifting their focus to data releases, with a variety of economy-related prints indicating less than smooth sailing.

Though corporate earnings are likely to be the primary market catalyst in the upcoming week, as trading ended on Friday, Treasury yields were plunging, indicating that even the Fed’s assurances that its dovish policy will remain in place didn’t seem to calm worried investors.

Indeed, though corporate results thus far have been strong, tumbling yields clearly signal fearful investors are padding their portfolios with Treasuries, which rose for a third straight week. Defensive stocks were also seeing an uptrend. 

On Friday, all four major US indices—the S&P 500, Dow Jones, NASDAQ and Russell 2000—sold off on fears that spiking inflation will disrupt the recovery, halting a trifecta of weekly gains. Even a solid showing in retail sales—the flipside of accelerating inflation—didn’t assuage concerns.

So much so that though investors initially drove stocks higher on Friday, after the release of the University of Michigan’s consumer sentiment index plunged to 80.8 from 85.5 a month earlier, disappointing all estimates, market conviction reversed.

The S&P 500 dropped -0.75%. The view that the economy will not expand as quickly as had been hoped triggered demand for defensive stocks. UtilitiesHealthcare and Consumer Staples finished in the green, while sectors reliant upon growth led the declines. Energy underperformed, (-2.8%), on the view that OPEC+ members will patch things up and increase supplies.

But cyclicals were out of favor even without any extenuating circumstances. Materials dipped 1.5%, Financials slumped 1.4% and Industrials retreated 0.9%. The growth sectors that saw the biggest benefits during lockdowns also retreated. Technology was down 1% and Communication Services lost 0.6%, notwithstanding the rapid and alarming rise of COVID cases across the US linked to the highly contagious Delta variant.

On a weekly basis, the S&P 500 Index retreated by 1% after Monday’s fresh all-time high. Also, from a weekly perspective, growth beat value sectors. Again, Energy led among the decliners, with a 7.9% loss, followed by a 2.3% selloff for Materials. Financials declined 1.6% and Industrials 1.5%.

On the other hand, Communication Services lost less than 1% and Technology shed just 0.6%. We see the same pattern in the monthly, tri-monthly, and six-month views. Only in the YTD timeframe does the reflation trade lead.

The index that's the poster child for the Reflation Trade, the Russell 2000, underperformed among benchmarks on Friday. It was down 1.3%.

The small-cap index also took a hit on a weekly basis, losing 5.1% of value—its worst weekly selloff since October. The losses were almost five times that of the NASDAQ 100, representing the tech mega-caps which were the pandemic darlings. The tech-heavy index was down only 1.07% over the same timeframe.

So, what’s up this market? Could it perhaps be a shift in investor focus, or simply a continuation of the seesawing sentiment investors have lately been riding on?

Tuesday’s consumer inflation print, which showed a monthly increase of 0.9%, was the largest jump in this metric since 2008, topping all forecasts. It points to higher costs associated with the reopening from the pandemic.

Despite soaring inflation, Federal Reserve Chair Jerome Powell said the economic recovery right now does not justify removing accommodation. As far as memory recollects, when the economy has been doing poorly, forcing the Fed to maintain stimulus, stocks have almost always jumped. This was the first time we can remember that investors responded to the figures associated with the actual economy.

Adding to our puzzled reaction, Friday’s disappointing sentiment read used to boost stocks whenever there was concern the Fed was considering tightening fiscal policy. Even strong corporate earnings followed by strong retail data didn’t seem to be enough. Is what's going on now about profit-taking or possibly something worse?

From a technical perspective, the NASDAQ is showing signs of a correction within an uptrend.

The tech-heavy index completed an Evening Star, whose bearish indicator is that the price will retest the bullish ascending triangle below.

On the other hand, small caps appear to be topping out.

The Russell 2000 is on the verge of completing a top, which the RSI has foretold, with a negative divergence.

Yields on the 10-year US Treasury note closed Friday at 1.3%, nearing their lowest level since February, a clear sign that investors are becoming cautious.

Yields complete a rising flag, suggesting another leg lower, the third bearish pattern as the downtrend steepens.

The dollar climbed for a second day on Friday, nearing its highest point since April. Gold fell.

On Friday, the yellow metal completed an Evening Star, suggesting the rising wedge will finally complete.

Bitcoin pared gains, and is now testing the lowest levels since January.

Oil registered its steepest weekly decline in months on the outlook of rising supply as OPEC+ neared an agreement.

WTI managed to edge higher on Friday but still suffered a 3.7% decline for the week, its worst performance since March. This was also the commodity’s first back-to-back weekly selloff since March. The RSI provided a negative divergence, peaking out below March highs, while the price shot up 13%. Will the 50 DMA find resistance below the 200 DMA, a bearish indicator, or will it climb above it, triggering a Golden Cross?

In the coming week, companies releasing earnings results include airlines, railroads and retail stocks such as Johnson & Johnson (NYSE:JNJ), Netflix (NASDAQ:NFLX), International Business Machines (NYSE:IBM) and Coca-Cola (NYSE:KO).

21:30: Australia – RBA Meeting Minutes

8:30: US – Building Permits: expected to rise to 1.700M from 1.683M.

10:30: US – Crude Oil Inventories: anticipated to surge to -4.359M from -7.897M.

7:45: Eurozone – ECB Interest Rate Decision: forecast to remain steady at 0.00%

8:30: Eurozone – ECB Press Conference

10:00: US – Existing Home Sales: expected to rise to 5.90M from 5.80M.

2:00: UK – Retail Sales: to jump to 0.5% from -1.4%.

3:30: Germany – Manufacturing PMI: predicted to edge down to 64.1 from 65.1.

4:30: UK – Manufacturing: to drop to 62.9 from 63.7.

4:30: UK – Services PMI: expected to slip to 62.0 from 62.4.

6:30: Russia – Interest Rate Decision: forecast to rise to 6.00% from 5.50%.

8:30: Canada – Core Retail Sales: seen to jump to -2.0% from -7.2%.

Knowledge vs. experience. When it comes to investing, such is what separates long-term success from failure. Amid a “market mania,” retail investors believe they have “knowledge”...

The Federal Reserve’s wall of denial about inflation has started to show cracks. Chairman Jerome Powell acknowledged in congressional testimony last week that inflation was running...

Despite surprisingly good data on Retail Sales, stocks of all styles, sizes, and shapes took a hit on Friday. Semis, banks, small-caps, mid-caps, and large-caps—all down....

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All of Dow's 30 components end lower in worst selloff for blue-chip index since late October

MarketWatch 19 July, 2021 - 03:13pm

The Dow falls over 700 points Monday as stock-market investors take a clue from the bond market and start worrying about growth.

Wall Street ends sharply lower as Delta variant spooks investors

Al Jazeera English 19 July, 2021 - 12:42pm

The S&P 500 closed 1.59 percent lower, after setting a record just a week earlier. In another sign of worry, the yield on the 10-year United States Treasury bill touched its lowest level in five months as investors scrambled for safer places to put their money.

The Dow Jones Industrial Average finished the day 725.81 points, or 2.09 percent lower, to hit 33,962.04; while the Nasdaq Composite dropped 152.25 points, or 1.06 percent, to finish at 14,274.98.

US airlines and stocks of other companies that would get hurt the most by potential COVID-19 restrictions took some of the heaviest losses Monday, similar to the early days of the pandemic in February and March 2020. Mall owner Simon Property Group fell 5.9 percent, and cruise operator Carnival lost 5.5 percent.

The drop also circled the world, with several European markets sinking roughly 2.5 percent and Asian indexes down a bit less. The price of benchmark US crude, meanwhile, sank more than 6 percent after the Organization of the Petroleum Exporting Countries and allied nations agreed on Sunday to eventually allow for higher oil production this year.

Increased worries about the virus may seem strange to people in parts of the world where masks are coming off, or already have, thanks to COVID-19 vaccinations. But the World Health Organization says cases and deaths are climbing globally after a period of decline, spurred by the highly contagious Delta variant. And given how tightly connected the global economy is, a hit anywhere can quickly affect others on the other side of the world.

Experts are saying Indonesia has become a new epicentre for the pandemic as outbreaks worsen across Southeast Asia. Meanwhile, some athletes have tested positive for COVID-19 at Tokyo’s Olympic Village, with the Games due to open Friday.

Even in the US, where the vaccination rate is generally higher, people in Los Angeles County once again must wear masks indoors regardless of whether they’re vaccinated following spikes in cases, hospitalisations and deaths.

Across the US, the daily number of COVID-19 infections has soared by nearly 20,000 over the last two weeks to about 32,000. The vaccine campaign has hit a wall, with the average number of daily inoculations sinking to the lowest levels since January. Cases are on the rise in all 50 states.

Localised coronavirus surges are starting to affect heavily unvaccinated communities in places like Missouri and Arkansas, where hospitals are running out of space again. Almost all of the hospitalised COVID-19 patients are unvaccinated. More than 68 percent of the US adult population has received at least one dose of vaccine and 59 percent are fully vaccinated. And about a dozen states have yet to vaccinate 40 percent of their populations.

Financial markets have been showing signs of increased concerns for a while, but the US stock market had remained largely resilient. The S&P 500 has had just two down weeks in the last eight, and the last time it had even a 5 percent pullback from a record high was in October.

Several analysts pointed to that backdrop of high prices and very calm movements for weeks while dissecting Monday’s drop.

“It’s a bit of an overreaction, but when you have a market that’s at record highs, that’s had the kind of run we’ve had, with virtually no pullback, it becomes extremely vulnerable to any sort of bad news,” said Randy Frederick, vice president of trading and derivatives at Charles Schwab. “It was just a matter of what that tipping point was, and it seems we finally reached that this morning” with worries about the Delta variant.

He and other analysts are optimistic that stocks can rebound quickly. Investors have been trained recently to see every dip in stocks as merely an opportunity to buy low. Plus, the general expectation is still for the economy to continue growing.

Barry Bannister, chief equity strategist at Stifel, was more pessimistic. He says the stock market may be in the early stages for a drop of as much as 10 percent following its big run higher in prices. The S&P 500 nearly doubled after hitting its bottom in March 2020.

“The valuations, they just got too frothy,” he said. “There was just so much optimism out there.”

The bond market has been louder and more persistent in its warnings. The yield on the 10-year Treasury tends to move with expectations for economic growth and for inflation, and it has been sinking since late March, when it was at roughly 1.75 percent. It fell to 1.19 percent Monday from 1.29 percent late Friday.

Analysts and professional investors say a long list of reasons is potentially behind the sharp moves in the bond market, which is seen as more rational and sober than the stock market. But at the heart is the risk the US economy may be set to slow sharply from its current, extremely high growth.

Besides the new variants of the coronavirus, other risks to that economy include fading pandemic relief efforts from the US government and a Federal Reserve that looks set to begin paring back its assistance for markets later this year.

Monday’s selling pressure was widespread, with 95 percent of the stocks in the S&P 500 lower. Even Big Tech stocks were falling, with Apple down 2.9 percent and Microsoft 1.6 percent lower. Such stocks seemed nearly immune to virus fears during earlier downturns, rising on expectations they’ll continue growing almost regardless of the economy’s strength.

The losses came despite several companies reporting even stronger profit growth for April through June than analysts expected. Tractor Supply said both its profit and revenue topped Wall Street’s expectations, for example, but its stock fell 4.5 percent.

Across the S&P 500, analysts are forecasting profit growth of nearly 70 percent for the second quarter from a year earlier. That would be the strongest growth since 2009, when the economy was climbing out of the Great Recession.

But just like worries are rising that the economy’s growth has already peaked, analysts are trying to handicap by how much growth rates will slow in upcoming quarters and years for corporate profits.

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