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The spread of the delta variant in East Asia and the US has resulted in the spike of the COVID-19 cases. Concerns of a slowdown in the economic recovery put markets under pressure.
On Thursday, July 8, Wall Street remained largely under pressure with the US stock indices falling steeply amid the economic recovery concerns. The Dow Jones Industrial Average (INDEXDJX: .DJI) tanked 260 points closing at 34,421 levels. The S&P 500 (INDEXSP: .INX) also lost 0.86% closing at 4320 levels.
The tech-heavy Nasdaq Composite tanked 0.72% after hitting record highs the previous day fueled by the tech sector rally. The recent rising cases of the COVID-19 delta variant are also the cause behind this market correction. The Japanese government has declared a state of emergency for the Tokyo Olympics. Local news publication Ashai daily also reported that organizers will ban the spectators from the games.
In the U.S, the Labor Department’s jobless data claims were unexpectedly high at 373,000. This surge could possibly lead to a slowdown in the economic recovery. The companies that were expected to lead the recovery with the rapid economic comeback, saw major correction.
Furthermore, stocks of chip companies declined on concerns of economic recovery. Intel, Qualcomm, and NVIDIA all dropped between 1-3% on Thursday. Other tech stocks like Apple, Microsoft, and Facebook also closed in the red. Speaking to CNBC, Timothy Lesko of Granite Investment Advisors said:
“The market has been in one of those ‘Goldilocks’ stretches when economic growth was accelerating while inflation and interest rates remained low. Increased Covid cases, particularly delta variants, have caused concerns that the economic acceleration will slow”.
10-Year Treasury Yield on Decline amid Economic Recovery Concerns
The 10-year Treasury yield has been on a continuous decline. Back in March 2021, it was the highest to 1.72% and it came down to 1.58% at the start of July. On Thursday, the 10-year Treasury yield dropped to 1.25%.
Traders have been more or less confused with the roll-over in the economic yield. Many have also pointed out that the best of the economic recovery could be behind us. with lower rates, the profitability of the banking stocks looked under pressure. Wells Fargo, Goldman Sachs, and Bank of America corrected more than 2% on Thursday. Christopher Harvey, head of the equity strategy at Wells Fargo said:
“Nothing suggests the near slump in yields is over. A sharp drop below 1.25% could cause equity PMs to believe that something is wrong or broken. As a result, we see a growing possibility of a 5% sell-off in equities before earnings season.”
One thing is clear that the COVID-19 concerns are still around the corner. The total number of cases worldwide continues to surge crossing 4 million on Wednesday. Japan and other East Asian countries have reported a strong spike. In the West, the US is also seeing a surge in cases.