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The fast spread in the Covid-19 delta variant has put concerns on the growth of the economy. The CBOE Volatility Index shot to 25 suggesting high fear among investors on Wall Street.
On Monday, July 19, Wall Street came crashing down amid fears of the rising cases of the COVID-19 delta variant. The Dow Jones Industrial Average (INDEXDJX: .DJI) tanked 2% or 700 points in the worst fall since October 2020.
Investors at Wall Street also feared that the surge in Covid cases can put roadblocks in the global economic recovery. Thus, sharp selling picked up on Monday aggravating investor losses further. Other indexes also registered a major drop.
The S&P 500 (INDEXSP: .INX) dropped 1.59% closing at 4258 levels. On the other hand, the Nasdaq Composite (INDEXNASDAQ: .IXIC) closed down 1.06% at 14,274.98 levels.
There’s been a sharp surge in the COVID cases in the U.S. The country has reported an average of 26,000 new cases a day over the last week. As per the CDC data, it’s more than a 100% surge a month back. Airline stocks were the worst hit as the surge in cases dampens the prospects of ease in travel restrictions. Stocks of Delta Air Lines Inc (NYSE: DAL) and American Airlines Group Inc (NASDAQ: AAL) tanked 4% and 5% respectively.
Further exacerbating the fears of the slowing economic growth, the 10-Year Treasury Yield tanked a five-month low of 1.17%. Speaking at CNBC’s Squawk Box, Allianz chief economic advisor Mohamed El-Erian said:
“You have two concerns coming together … concerns about market technicals and concerns about growth. That’s what all the asset classes are telling you.”
Morgan Stanley: Expect 10-20% Correction amid COVID-19 Delta Fears
“The market appears ready to take on a more defensive character as we experience a meaningful deceleration in earnings and economic growth. Market breadth has been deteriorating for months and is just another confirmation of the mid-cycle transition, in our view. It usually ends with a material (10-20%) index level correction.”
With the recent correction, the S&P 500 has dropped 3.1% from its record high last week. However, it is still 15% up on a year-to-date basis. Analysts are raising warning bells on the fast spread of the Delta variant. It has now become the dominant strain across the world with infections rising rapidly, especially among the unvaccinated.
But Billionaire investor, Bill Ackman has a different thought. He notes that the spread of the Delta variant doesn’t have a significant threat to economic reopening. Ackman said:
“I hope what it does is that it motivates anyone who doesn’t get the vaccine to get the vaccine. I don’t think it’s going to change behavior to a great extent. You are going to see a massive, my view, economic boom. … We are going to have an extremely strong economy coming in the fall.”
The earnings season gave a strong momentum to the market last week. Hopefully, the delta variant spread doesn’t put the spanner-in-the-wheel of economic recovery.