Dow falls 450 pips on global economic recovery worries, bond yields slide

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Major US stock indices fell Thursday amid concerns about Covid-19’s global economic comeback. The losses came as Japan declared a state of emergency for the upcoming Tokyo Olympics and countries struggled to recover in Covid variant cases.

The Dow Jones Industrial Average lost about 450 points, or 1.3%. The S&P 500 lost 1.25%. The Nasdaq 100 Composite lost 1.3%. Both the S&P 500 and the Nasdaq Composite closed the previous session at record highs on gains from technology stocks.

The latest jobless claims data from the Department of Labor was unexpectedly higher at 373,000, suggesting a possible slowdown in the labor market amid the Covid rebound. According to the Dow Jones, economists expected 350,000 first-time applicants for unemployment benefits in the week ending July 3.

The losses were led by companies that would benefit from a swift economic comeback of the virus. Carnival and Royal Caribbean stocks fell more than 2% each. American Airlines and Delta Air Lines each fell more than 2%. Boeing lost 1.7% and Ford was also 2.5% lower. The retailers Macy’s and Kohl’s lost nearly 3%.

Chip stocks also fell on concerns about the pace of the global recovery. Micron, NVIDIA, Qualcomm, Intel, and Applied Materials all lagged more than 2%.

“The market was on one of those ‘goldilocks’ routes when economic growth accelerated while inflation and interest rates remained low. Increasing Covid cases, especially Delta Variants, have raised concerns that the economic acceleration will slow, “said Timothy Lesko of Granite Investment Advisors. “A few weeks ago the porridge was too hot, now it seems too cold. With markets hitting all-time highs and some valuations being overdone, there is little room for economic slowdown in this market.”

Investors continued to switch to government bond security on Thursday, pushing 10-year government bond yields to 1.25%, their lowest level since late February. Despite the economic recovery and rapid inflation, the yield on 10-year government bonds continues to decline. It stood at 1.58% in early July and hit a 2021 high of 1.78% in March. Traders are confused about the exact reasons for the yield increase, and many cite concerns that the best of the economic rebound is behind us could be.

Bank of America, Wells Fargo, Goldman Sachs and other financial stocks fell Thursday as their profitability prospects clouded with lower interest rates. JPMorgan Chase and PNC Financial were also lower.

“Nothing to suggest that the near-collapse in yields is over,” wrote Christopher Harvey, head of equity strategy at Wells Fargo, in a statement Thursday. “A sharp drop below 1.25% could lead the stock PMs to believe something is wrong or broken. As a result, we see a growing possibility of a 5% sell-off in stocks ahead of earnings season.”

Harvey noted that he believes that buying bonds is more technical in nature and not driven by macroeconomic factors.

The Summer Olympics in Japan – which have already been postponed by a year – will ban spectators, Reuters reported on Thursday. This follows Japan’s declaration of emergency for Tokyo to stem a wave of new Covid infections. The state of emergency begins July 12th and lasts until August 22nd, while the games are scheduled from July 23rd to August 8th.

Meanwhile, the global Covid death toll continued to surge, topping 4 million late Wednesday as countries like India battle more communicable variants.

The Cboe Volatility Index or “VIX” rose above the key 20 level Thursday morning, possibly indicating a period of greater volatility ahead.

So-called meme stocks took big hits on Thursday as the sell-off caused investors to flee stocks like AMC and GameStop, which have been bolstered by speculative trading by retailers chatting on Reddit. AMC fell 8% and GameStop fell more than 3%.

The downward move in futures came after a positive regular session for US markets led by technology stocks on Wednesday. The S&P 500 rose 0.3% to an all-time high of 4,358.13, while the Dow Jones Industrial Average climbed 104.42 points to 34,681.79. The tech-heavy Nasdaq Composite closed just above its own flatline to hit a record close.

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