Market is sweeping past fears about Covid variant to tinker with successful week
MANHATTAN (CN) – Still in the midst of a successful first half of 2021, Wall Street got a splash of cold water in its face earlier this week as markets fell, quickly launching into another winning week.
From a decline of around 350 points earlier in the day, the Dow Jones Industrial Average lost around 250 points on Thursday. The S&P 500 lost around 60 points while the Nasdaq lost more than 100 points on Thursday.
Fortunately, on Friday, those concerns eased somewhat. The Dow Jones gained 1.3% on Friday to end the week 83 points higher. The S&P 500 and Nasdaq both also had big wins on Friday, registering increases of 17 points and 62 points, respectively, since last week.
The fall in markets on Thursday was mainly due to concerns over the delta variant of Covid-19, which has become the main variant causing infections, hospitalizations and deaths in many regions.
One of those regions is Japan, which announced on Thursday that the Summer Olympics due to start on July 23 in the host city of Tokyo would be continue without spectators. Medical experts had warned that Japan, which has still not vaccinated the majority of its citizens, was courting disaster by organizing matches with spectators.
The delta variant is considered to be more virulent than other variants of Covid-19, but researchers have so far found that two doses of ether from the Pfizer or AstraZeneca vaccine are sufficient to neutralize the variant. Those who received only one injection of either vaccine were considered poorly or not at all protected against the delta variant, but Pfizer ad Thursday that he was developing a booster shot to target the delta variant.
Another concerning favor is that many scientists believe that those who have been vaccinated can still transmit the delta variant, which is now the most dominant strain in the United States. The strain has been verified in over 90 countries.
James Vogt of Tower Bridge Advisors wrote that “the short-term fear is here for now” and that the main concern for investors is the shutdown of major economies in the fall if cases continue to rise. “Fears of the delta variants will slow down the reopening phase and indicate somewhat slower growth than initially hoped for, although still in the right direction,” he wrote on Friday.
âEven with vaccines, many are still concerned about this deadly disease. Anything that makes them more cautious is obviously not good for growth, âVogt wrote. âEventually the vaccines will be readily available around the world and we will definitely have passed the closures. “
Concerns over the virus have manifested mainly in the bond market. U.S. Treasuries yields fell again on those fears on Thursday, with the 10-year Treasury at one point falling below 1.25%, its lowest level in months. On Friday, the 10-year yield rallied to 1.35% at the closing bell, although it was still far from the 1.75% it was in March.
Following the new data, some previously bullish analysts have lowered their expectations. Paul Ashworth, chief economist at Capital Economics, has changed his forecast for gross domestic product growth to less than 6% for 2021, although he expects 10-year Treasuries to rebound in the second semester of this year.
âThe initial rise in this yield earlier this year was mainly due to a significant rebound in inflation compensation,â he wrote in a note to investors on Friday. “But even if the reality [consumer price index] inflation data surprised on the upside, compensation edged down over the past two months.
He added that “even if the real return component remains weak, there is good reason to expect a rebound in inflation compensation to push up long-term nominal yields in the second half of this year.” .
The good news is that investors are also “starting to abandon the idea of ââstructurally higher US inflation,” according to Nicholas Colas and Jessica Rabe of DataTrek Research, who believe the economy is in a transitional phase of inflation and primarily based on things like used cars and gasoline rather than generalized structural inflation.
âLooking into the second half of 2021, this might just be the most important data point to watch,â they wrote. âIf inflation expectations start to rise again, markets will rightly worry if the Federal Reserve will have to raise rates sooner. If they continue to fall, the market’s expectation of a rate hike in 2022 will be a safe assumption. “
The Fed has indicated that it is considering cutting its bond purchases, but markets expected the central bank to do so perhaps as early as next year and with an announcement possibly this fall.
“Various participants mentioned that they expected the conditions to start reducing the pace of asset purchases to be met a little earlier than expected in previous meetings in light of the incoming data,” noted the Federal Open Markets Committee in report of its meeting from June 15 to 16 published Wednesday.
Investors were also somewhat discouraged by a further increase in new jobless claims. According to the Ministry of Labor, initial requests increased to 373,000 for the week ending July 3, compared to the revised number of 371,000 the previous week and 416,000 the previous week. Pennsylvania and Texas saw the largest increases in new claims last week, reporting 5,100 and 3,800 new claims, respectively.
“While we forecast an exceptional performance in the labor market this year with the economy expected to recover a total of 8 million jobs, the return to a pre-Covid environment will not happen overnight and we should be ready for bumpy labor demand and supply in the second half of the year as the economy gradually returns to a new post-pandemic normal, âOxford Economics analyst Lydia Boussour wrote.
She noted that the jobless-to-job vacancies ratio remains around one-to-one, but added that many industries and some services have less than one unemployed person available for each opening. Recreation and hospitality, as well as health and education services, are among these industries, she wrote.
The current positive market pace could be helped next week, when corporate earnings from a number of companies – including JPMorgan Chase, Goldman Sachs, PepsiCo and UnitedHealth Group – could help boost investors, as they claim. did at various times during the pandemic.