U.S. stock indexes closed mostly lower Monday, as the spread of the delta coronavirus variant, profit-taking and a downgrade of China growth by Goldman Sachs dinged bullish sentiment on Wall Street.
But all three major averages remain near all-time highs.
How did stock markets trade?
The Dow and S&P 500 on Friday ended at a record as all three indexes loged weekly gains.
What drove the markets?
Stocks took a breather on Monday, as investors struggled to find fresh reasons to push major averages further into record territory.
“Basically, it’s an uneven market,” said Peter Cardillo, chief market economist at Spartan Capital, in a phone interview. “I think it’s twofold: One, we closed at record highs Friday, so there’s a bit of profit-taking,” he said.
But stress in the metals and oil sectors “due to the added fear factor of the delta variant,” has been a second catalyst, he said. “Those two hard asset commodities are under severe pressure,” Cardillo said, pointing to the 1.5% fall for the S&P 500 energy sector and 0.4% dip for its industrials segment. “But considering that particular fear factor, I think the market is doing pretty good.”
Enthusiasm around the strong U.S. economic rebound from the pandemic was juxtaposed Monday with a surge in new COVID-19 cases in the U.S., which topped 100,000 daily for the first time in about six months, despite widespread availability of vaccines.
The latest crisis has stressed some hospitals, including in Austin, Texas, to the brink, throwing a wrench in plans by many companies looking to return more staff to the office this fall and raising anxieties about young children, not yet eligible for vaccines, returning to classrooms.
“The continuing spread of the COVID-19 Delta variant remains in sharp focus, with new U.S. cases hitting a six-month high last week and hospitalizations increasing by roughly 40% from the prior week,” Saira Malik, chief investment officer for Nuveen’s $450 billion global equity division, in emailed commentary.
“We maintain our view that equity markets are likely to remain highly susceptible to pullbacks and may react negatively to economic data that misses consensus expectations.”
A better than-expected July employment report, with 943,000 new jobs created and the unemployment rate falling to 5.4% from 5.9%, drove records for the Dow and the S&P 500 on Friday. That briefly helped to offset concerns around surging COVID-19 cases, driven by the delta variant, and a potentially slower pace of economic growth.
Federal Reserve officials have been deeply focused on seeing further progress in the labor market as part of broader plans to eventually pull back stimulus for the economy. More data on inflation, another part of the central bank’s mandate, will be due Wednesday with July CPI.
Stocks indexes mostly shrugged off earlier data Monday morning that showed U.S. job openings rose to a record 10.1 million in June.
More focus was on Goldman Sachs’ downgrade of its China growth forecasts Monday, due to the country’s efforts to contain a small but growing number of COVID-19 cases in several regions. The bank cut its third-quarter growth outlook to 2.3% from 5.8%, but lifted its fourth-quarter outlook to 8.5% from 5.8% previously. That leaves its full-year 2021 projection at 8.3% from 8.6% previously.
Beijing has reportedly punished 30 officials across the country for lax attitudes and response in containing the virus, according to the state-backed Global Times. Meanwhile, fresh data showed producer prices climbing 9% from a year earlier, faster than an 8.8% increase in June, according to the National Bureau of Statistics Monday.
In Washington, Senate Democrats on Monday released the text of a budget resolution that would allow them to pass their $3.5 trillion package focused on “human infrastructure,” climate change and other Democratic priorities. The Democratic-run Senate is aiming to take a two-step approach to big spending, with the $3.5 trillion package advancing by a simple majority vote through a process known as budget reconciliation after the chamber passes a $1 trillion bipartisan infrastructure package.
Senate Majority Leader Chuck Schumer also on Monday said the $1 trillion infrastructure bill was “on a glide path for passage” Tuesday morning, which promises to unleash billions to help upgrade America’s neglected roads, bridges, broadband, water systems and other public works.
The investment push would be the largest of its kind in years. It also follows the U.N.’s Intergovernmental Panel on Climate Change (IPCC) update Monday that said the last decade was hotter than any period in 125,000 years, contributing to more severe and frequent droughts, fires and floods.
Barbara Kollmeyer contributed reporting