Stocks fall as fears about growth, delta variant shake market

Stocks fell Thursday morning amid growing concern on Wall Street about the strength of the recovery from the coronavirus recession.

The Dow Jones Industrial Average opened with a loss of nearly 400 points, a 1.1 percent decline, but pared its losses to finish down 0.8 percent. The S&P 500 index closed with a loss of 0.9 percent and the Nasdaq composite fell 0.7 percent by the closing bell.

Thursday’s sell-off hit a wide range of industries that would take hits if the recovery slows down or the pandemic worsens, including cruise lines, airlines and retailers. Major manufacturers, retailers and technology companies also saw their stocks fall.

Treasury bond yields also fell sharply, which often indicates concerns about future economic growth but could also be driven by technical factors. The yield on the 10-year Treasury bond fell to 1.25 percent after reaching close to 1.7 percent several weeks ago due to inflation fears.

“A few months ago, it looked like we were on the road to 2% or higher as inflation ramped up, but now the question is whether we’ll see a 1% yield again before we get to 2%,” wrote JJ Kinahan, chief strategist at TD Ameritrade, in a Thursday analysis. 

“If inflation isn’t an issue, then perhaps the economy isn’t growing as quickly now as it had been back in April and May when inflation ramped up,” Kinahan added. “Higher inflation is often a sign of faster economic growth.”

The opening market sell-off was a sharp break for months of fairly steady gains only punctuated by brief declines driven largely by inflation fears. 

Analysts say Japan’s declaration of a state of emergency, which led to the Olympics banning spectators from the upcoming games, and fears about how the delta variant will affect economic activity were factors behind Thursday’s declines.

Even so, many expressed confidence that the stock market was only going through a typical pullback after cruising through record highs for more than a year.

“Markets are having a bad morning, but this is normal and even healthy given the recent strong run. This looks like a short-term reaction to recent concerns about the delta variant more than anything else, said Brad McMillan, chief investment officer for Commonwealth Financial Network.

“Given that vaccinations are limiting case growth, which should keep the country open for business, the economic risks are likely limited. Also, with interest rates still low, which should support valuations, and with earnings likely to grow sharply again this quarter, any further downside is likely to be limited.”

Updated at 5 p.m.