All 30 stocks in the Dow are lower. And 463 of the stocks in the S&P 500 are in red. Oof.
The stock market - aka the S&P 500 - which is what most retirement accounts reflect - is up 13% this year after today's selloff
$FANG is the worst performing stock in the S&P 500, down 6.9%
Wall Street showing worry about the rising number of Covid-19 cases and Delta variant: Dow futures were down about 450 points Monday, a drop of 1.3%. The S&P 500 and Nasdaq futures, about 1% lower. Airlines, cruise lines and energy stocks among those hit hardest.
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Investors got defensive on Monday, with stocks down, bond prices up, and commodities trading like there’s another Covid-induced recession coming.
Fears over the Delta variant of Covid-19 were the trigger for Monday’s selloff, but they were also a chance for markets to blow off some steam after a long rally without a correction. The declines could open up buying opportunities for investors willing to fade those concerns and scoop up some suddenly discounted names.
Stocks of more cyclical and economically exposed companies bore the brunt of the declines on Monday. The Dow Jones Industrial Average closed down 726 points, or 2.1%, while the S&P 500 lost 1.6% and the technology-heavy Nasdaq Composite fell 1.1%. The yield on the 10-year U.S. Treasury note dipped below 1.2%, its lowest level since February. U.S. oil prices tumbled 7.5%.
The Delta variant, a more contagious mutation of the coronavirus, has quickly become the dominant strain in the U.S., accounting for the majority of infections in recent weeks. Centers for Disease Control and Prevention director Dr. Rochelle Walensky said Friday that the spread was concentrated in areas where vaccination rates were relatively low. Walensky added that although new daily cases were up 70% in a week, hospitalization and death rates were climbing less quickly.
Another surge of Covid-19 infections raises the specter of a fresh wave of lockdowns and restrictions that would hamper the economic recovery under way. And with inflation pressures firmly in place and commodity prices on the rise as supply chains struggle to keep up with demand, an ugly word comes to mind: stagflation, or surging inflation despite sluggish economic growth.
“The global economy is barely surviving on life support, and another wave of infections may spur lockdowns that could signal the death knell for the tenuous recovery,” said Peter Essele, head of investment management for Commonwealth Financial Network, on Monday. “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.”
The gloomy Covid news comes as market concerns had been building on several fronts. The fastest rate of inflation in years, uncertainty about a coming shift in Federal Reserve policy, and pricey valuations had already put stock investors on edge. Expectations are also high for the second-quarter earnings season currently under way.
A lot of good news had already been priced into the market, with major indexes hitting new highs last week. The S&P 500 was up 16% this year and hasn’t experienced a pullback of more than 5% since last fall, an environment ripe for some correction in stock prices.
But that doesn’t mean it’s all doom and gloom for stock investors from here. Periodic corrections can be healthy for a bull market since they push valuations back in check, presenting buying opportunities for newly discounted stocks.
“The [S&P 500] is below its 20-day [moving average] this morning for the first time since mid-June, when a four-day pullback took hold,” wrote Katie Stockton, founder and managing partner at technical-analysis focused Fairlead Strategies, on Monday. “Short-term momentum is now to the downside, but we think the pullback will be similarly short-lived.”
Furthermore, Stockton noted that the S&P 500 found support around its 50-day moving average of 4232 on Monday. The index closed at 4258.49 on Monday.
Concerns about new Covid-related lockdowns on the horizon might be overblown at this stage in the pandemic. It’s safe to say there’s little appetite for continued or reimposed restrictions among Americans, and the Delta variant hasn’t been shown to cause severe infections in vaccinated individuals, keeping mortality low.
“We expect the reflation trade—cyclical stocks, bond yields, high beta stocks, reflation and reopening themes—to bounce imminently as Delta variant fears subside and inflation surprises persist, and due to supports from above-trend growth, strong consumer fundamentals, and a low earnings hurdle rate,” wrote J.P. Morgan’s chief global markets strategist Marko Kolanovic on Monday.
In other words, buy the dip. A 2020-style Covid lockdown in the U.S. shouldn’t be top of the list for investors with enough to worry about already.
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19 July, 2021 - 04:01pm
19 July, 2021 - 04:01pm
19 July, 2021 - 09:13am
US futures contracts on the Dow, S&P, NASDAQ and Russell 2000 and stocks in Europe retreated Monday on concerns that the global economic recovery will fizzle out due to a resurgence of coronavirus via the fast-moving and highly contagious Delta variant, along with increased inflation. This anxiety weighed on markets during Friday's trade and persisted over the weekend. That may be a sign that this view is beginning to gain traction.
Oil fell after an OPEC+ breakthrough deal to increase supply; the dollar accelerated.
All four US futures were in the red, with those on the Russell 2000 1.8% deep, while NASDAQ contracts were outperforming, down just 0.6%. Since the small cap index is the focal point of stocks likely to benefit the most from a return to a normal economy, and technology firms see more profit during social restrictions, today’s trading pattern demonstrates a continued retraction of the reflation trade.
The pandemic weighed on European investors’ minds, as travel and leisure shares, along with basic resources, were the heaviest drag on the STOXX 600 Index, which extended a selloff to its fourth session—the longest losing streak for the pan-European index since October. The benchmark is moving toward a six-week low.
The index may be completing a double-top, following waning momentum, with the RSI triggering a negative divergence and proceeding to complete its own double top.
Earlier Monday, Asian benchmarks also extended a sellof, with the MSCI’s gauge of Asia-Pacific stocks falling to a weekly low, on the ongoing spread of the Delta strain in Asian countries, including Malaysia, Indonesia and Thailand, as well as parts of Japan, especially Tokyo, where the Olympics are scheduled to kick-off on Friday. Positive cases among athletes is souring sentiment there. This morning, the Nikkei 225 was down 1.25%.
One biotech that made its name because of the virus, Moderna (NASDAQ:MRNA), jumped 10.3% after news broke that the drugmaker will be added to the S&P 500 Index on July 21, resulting in an upside gap as portfolio managers will be forced to buy the stock in order to continue tracking the index.
Last week, US stocks suffered a weekly loss for the first time in a month, as investors seemed to shift focus from the economic growth driven by fiscal and monetary policy to actual economic data which showed inflation spiking even more than expected and declining sentiment outshadowing strong earnings releases.
The selloff in stocks didn't occur in a vacuum. Rather, investors rotated funds into Treasuries, pushing yields on the 10-year Treasury note yet lower, below 1.3% and toward 1.26%.
Yields are under considerable pressure, having completed a rising flag—whose significance is underscored by the 200 DMA’s failure to support the downside breakout—bearish after the previous plunge, itself a downside penetration of a symmetrical triangle which was also bearish following a top.
Perhaps, foreign Treasury buying boosted the dollar. The greenback neared, then surpassed 93.00 at time of writing, for the first time since early April.
A close above 94 will complete a large double bottom. Note the RSI’s congested decline, reminding us of a falling flag, bullish after a preceding jump. Due to USD strength—probably on increased demand for Treasuries—gold is falling for the second day, despite risk-off sentiment.
The yellow metal is attempting to provide a downside breakout to its rising wedge, after completing an Evening Star, which found resistance by a Death Cross.
Bitcoin trading was listless for the fourth day, hovering at $31,600.
Oil opened lower and continued to sell off, moving below $70, for the first time since early June, as OPEC+ reached a deal to increase output. Producers will pump another 400,000 barrels a day each month from August, while the UAE and others secured higher quotas starting May 2022.
WTI completed a small H&S top, which is now testing the uptrend line since the Nov. 2 low. The 50 DMA reinforces the support of the uptrend line, while the 100 DMA supports the preceding triangle, whose implied target was achieved.
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