U.S. Stocks Drop With Worries Mounting Over Growth: Markets Wrap

(Bloomberg) -- U.S. stocks fell in volatile trading as mixed economic data kept investors on edge about the timing of stimulus tapering even as the relentless spread of the Covid-19 delta variant undermines global growth.

The S&P 500 notched a fourth straight decline after erasing an intraday gain that had brought it to within 0.4% of its all-time high. The dollar weakened and 10-year U.S. Treasury yields declined. European equities fell, with the Stoxx 600 erasing the initial advance it saw after the European Central Bank said it will slow its emergency support but keep policy accommodative.

Thursday’s volatility came as data showed initial unemployment claims in the U.S., where calls for the Federal Reserve to start reducing its asset purchases have been growing, fell to a pandemic-era low as the labor market continues to recover. At the same time, there’s increasing evidence that the delta variant may impede the recovery. More U.S. companies have been expressing concern about it. Microsoft Corp. on Thursday indefinitely delayed a full reopening of its offices. The Biden administration plans to order executive branch employees, federal contractors and millions of health-care workers to be vaccinated and require large private employers to mandate shots or testing.

Chris Zaccarelli, chief investment officer at Independent Advisor Alliance, pointed out that the afternoon swoon in stocks coincided with a Treasury auction and follow-on activity in the bond market where investors were buying Treasuries aggressively, pushing down yields. 

“It looked like algorithms or other quick-moving traders were at work in the equities market following what happened in the bond market,” Zaccarelli said. Underlying that, “there’s a general feeling in the market that growth is slowing down in the U.S. There’s concern that what’s happening with the delta variant is impacting consumer behavior, potentially business behavior,” he said.

While Thursday’s jobs report showed a stronger-than-expected labor market, other recent readings on the economy have been mixed. The Federal Reserve’s Beige Book survey showed U.S. economic activity decelerated in the past two months as consumers pulled back on spending due to safety concerns. However, shortages meant inflationary trends remained stubborn, according to the findings. Further evidence of global price pressures came from China, where factory-gate inflation surged.

Still, calls for a reduction in bond purchases are strengthening. Fed Bank of New York President John Williams said it could be appropriate for policy makers to begin tapering this year. Dallas President Robert Kaplan said based on the current outlook he would back a September announcement of a tapering in bond purchases and a possible start in October.

Chinese technology stocks slid after officials told firms including Tencent Holdings Ltd. and NetEase Inc. to end their focus on profit in gaming. The selloff extended to the U.S., where NetEase and Alibaba Group Holding declined.

Digital Realty, which manages technology-related properties, tumbled 5% after entering into forward sale agreements with banks for 6.25 million shares at $160.50 each.

What to watch this week:

• U.S. President Joe Biden may make his choice this week on whether to renominate Fed Chair Jerome Powell to a second term

For more market analysis, read our MLIV blog.

Some of the main moves in markets:

Stocks

• The S&P 500 fell 0.5% as of 4 p.m. New York time
• The Nasdaq 100 fell 0.4%
• The Dow Jones Industrial Average fell 0.4%
• The MSCI World index fell 0.4%

Currencies

• The Bloomberg Dollar Spot Index fell 0.2%
• The euro was little changed at $1.1826
• The British pound rose 0.5% to $1.3837
• The Japanese yen rose 0.5% to 109.71 per dollar

Bonds

• The yield on 10-year Treasuries declined four basis points to 1.30%
• Germany’s 10-year yield declined four basis points to -0.36%
• Britain’s 10-year yield was little changed at 0.74%

Commodities

• West Texas Intermediate crude fell 1.9% to $67.97 a barrel
• Gold futures rose 0.2% to $1,796.70 an ounce

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