This is shaping up to be the worst day for the Dow since a 943-point drop in late October.
Investors feared that the Delta coronavirus variant could threaten the US economic recovery. Shares of companies in sectors that were widely thought to benefit most from the reopening of the economy are getting hit the hardest.
Long-term bond rates continued to slide as well, a sign that fixed income investors are now far more worried about a Delta variant-induced economic slowdown than they are about rising inflation fears.
But as consumer prices continue to rise, some worry about a more insidious threat: the possibility that another Covid-19 outbreak could slow the economy even as inflation pressures mount. That’s a phenomenon known as stagflation.
“Fear of stagflation will be a major concern for investors if a resurgence in Covid infections causes economies to slow while consumer prices continue an upward trajectory,” said Peter Essele, head of investment management for Commonwealth Financial Network, in an email.
Forty-eight states are now seeing new case numbers surge at least 10% higher than the previous week, according to data from Johns Hopkins University.
Stocks still up sharply this year and from 2020’s lows
Despite the recent volatility, stocks are not far from record highs and are having a solid year.
The Dow is still up more than 10% in 2021 and is just 3% below its all-time peak. The S&P 500 has surged 13% this year and is also only 3% off its record high.
What’s more, the S&P 500 is up about 90% from its Covid-induced bear market lows of March 2020. Some strategists think the recent sell-off presents an opportunity.
“We do not expect a return to complete shut downs in the US so while the damage from the Delta variant can be significant, we are still in the ‘buy the dip’ camp,” Bryce Doty, senior portfolio manager with Sit Fixed Income Associates, said in a report Monday.