A general view shows the National Stadium, main venue for the Tokyo 2020 Olympic and Paralympic Games, in Tokyo on July 8, 2021.
AFP via Getty ImagesGlobal stocks slumped while the bond rally continued on Thursday, on jitters around how the economy would perform without as much fiscal and monetary stimulus next year as well as the lingering coronavirus that is denting reopening hopes.
S&P 500 futures have fallen 1.2%, while Dow Jones Industrial Average futures have dropped 446 points, or 1.3%, and Nasdaq Composite futures have declined 1.2%.
The stock market’s massive rally since its March 2020 bottom has been predicated on one thing: That Covid would be defeated, and the economy would return to something that looks like normal. But with the spread of the Delta variant and new lockdowns, that narrative is being challenged—big time. If Covid is back, then not only has economic growth peaked, but could be set to slow.
“Equity markets globally are getting slammed this morning as stocks have started to drink the fear of the bond markets that reflation has peaked,” NatAlliance Securities’ Andrew Brenner “Is this the start of an equity correction that we thought would start in the middle of August? …We don’t think so but it is ugly this morning.”
The stock market is following the 10-year Treasury yield, which has slumped 0.048 point to 1.273% Thursday morning, lower.
“While stocks have been on a tear, hitting all-time highs last month, the mood in the markets is starting to sour,” writes Oanda’s Sophie Griffiths.
The Nikkei 225 lost 0.9% in Tokyo, where investors had to consider the news the Olympics will likely be held without spectators as Japan declared a new state of emergency until late August due to the spread of coronavirus.
The Hang Seng lost nearly 3%, with tech stocks including Alibaba and Tencent retreating amid China’s tightening regulatory regime.
But the decline was spread across all major markets. The Stoxx Europe 600 fell more than 2% after ending Wednesday at its second-highest level ever.
“Market concern about the virus can be seen in the relative performance of sectors that benefit from reopening the economy, such as airlines and hotels. Those sank yesterday even while the overall markets rose,” said Marshall Gittler, head of investment research at BDSwiss Holding.
It was the first opportunity for overseas investors to react to the latest minutes coming from the U.S. Federal Open Market Committee, which showed division on the timing for reducing the rate of bond purchases. That didn’t come as a surprise since officials have been airing their disparate views in public. “Overall, the Fed is struggling to form a consensus on the direction of the asset purchase program,” said Tim Duy, chief U.S. economist at SGH Macro Advisors.
The European Central Bank meanwhile is going to announce the results of its strategy review, in which the central bank is expected to move from targeting inflation below but close to 2%, to a symmetric 2% target, which is in line with other central banks. The announcement is set for 1 p.m. local time, or 7 a.m. Eastern, followed by a press conference with ECB President Christine Lagarde.
Charles Schwab (ticker: SCHW) has dropped 4.6% after getting downgraded to Neutral from Conviction Buy at Goldman Sachs.
D.R. Horton (DHI) has fallen 2.7% after getting cut to Sector Perform from Outperform at RBC Capital.
Dish Network (DISH) has declined 2.2% despite getting upgraded to Hold from Reduce at HSBC.
Freeport-McMoRan (FCX) has slumped 4.3% after getting cut to Underweight from Equal Weight at Barclays.
Overstock.com (OSTK) has gained 1.8% after getting started at Buy at Needham and getting added to the firm’s conviction list.
Write to Ben Levisohn at ben.levisohn@barrons.com
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