“It won’t be normal from September”: investors take stock as Delta spreads

When partygoers returned to nightclubs just a minute after midnight to celebrate the lifting of social restrictions in England on Monday, investors were less jubilant.

Instead, they looked like bag sale it has developed around the world, sending down some of the sectors that had propelled the world’s highest stocks earlier this year, some of them in correction territory – 10 per cent below their peaks.

The reopening of England has added to fears from some investors about the growing cases of the Delta coronavirus variant. Europe’s Stoxx 600 index suffered its worst trading session of the year. In the United States, where Delta also spread, the S&P 500 fell 1.6 percent.

The seemingly relentless upward movements in the S&P 500 and other capital indices in recent weeks had dispelled the turbulence bubbling just below the surface. The euphoria created by vaccine launches this year has been diminished, replaced by creeping concerns about the sustainability of the economic recovery.

“It’s a virus [variant] it spreads rapidly. There has been a collective opening of eyes that this could delay things, ”said Alex Veroude, investment director for North America at Insight Investment.

“A lot of people are hoping we’ll get back to normal in September. It won’t be normal in September. Will it be so bad in September? No, but it won’t be normal.”

Losses were mainly concentrated in cyclical sectors that went down and flow with changes in the wider economy. These industries had been the main beneficiaries of the reopening trade, but that trade began to unfold.

The Dow Jones Transportation Average, for example, which includes economic campaigns like the shipping behemoth FedEx and rail operator Kansas City Southern, crashed into a technical correction Friday last week. The index’s big airlines have also gone bad, falling into a bear market, defined as a drop of more than 20 percent from their high.

Other areas closely linked to U.S. expansion have also been hit hard. Companies in the materials sector fell more than 11 percent from a recent peak, with chemical manufacturer Dow declining 19 percent over the period. Energy stocks suffered a 4 percent drop Monday, the sixth day of losses.

The Russell 2000 index could have been a canary in coal mining. It measures small and medium-sized companies, which tend to be particularly sensitive to changes in the growth rate of the United States, and investors began to fall in those weeks but months ago. It hit its all-time high in March and has weighed water ever since. Its 1.5 percent drop Monday brought losses from that peak to just under 10 percent.

Since investor inflation expectations peaked in mid-May, more than half of the companies in the S&P 500 have fallen in value and 16 percent are in excess of 10 percent. In the larger Russell 3000 – and 1,000 larger companies than Russell 2000 – at least 24 percent of its components were in correction territory on Monday.

The graph shows the performance of the sector since May 10, when inflation expectations have reached a high (%) showing the recent growth of the S&P 500 undermined by the performance of certain sectors.

Morgan Stanley strategists warned Monday that the speed of recovery in economic activity in the United States was unsustainable, and advised that customers have taken a more defensive approach to investing.

“There’s little doubt that there’s a growing demand for things like eating out, live entertainment and traveling,” said Mike Wilson of Morgan Stanley, but after washing in cars, furniture and improving the home, there’s less consumers need to repeat those purchases. “It is… Clear that there has been a massive return in demand.”

Investors are struggling to protect themselves against further stock market crashes, including put options that pay off if stocks fall. The “put-call ratio,” which measures the number of put contracts purchased compared to the number of call options purchased on a given day, on Monday reached its highest level since mid-May.

“What’s happening today is this Delta variant and a completely understandable scare given that the cases are in all 50 states,” said David Kelly, strategist at JPMorgan Asset Management.

10-year US Treasury real yield graph (10%) showing real US yields falling to their lowest level since January

Investors have been looking for relative security in U.S. Treasury securities, pushing yields on 10-year benchmark notes below 1.2 percent on Monday, the lowest since February. Real yields, which eliminate the effect of inflation on yields, have fallen as much as 1.12 percent for the 10-year Treasury, the lowest since January.

Both points of data have been taken by bears as armies of a rapidly cooling economy, as was the flattened yield curve: the difference between long-term and short-term government debt yields. it is also the tightest since early February.

The flattening curve has diminished investors ’enthusiasm for banks’ profitability, based on the rough thesis that it reduces the gap between what they pay to bring in cash and what they can make from the loan.

A slower-than-expected economy, meanwhile, bodes ill for loan demand among its customers. The growth of missing loans was a feature of second-quarter earnings from the sector last week.

As a result, U.S. bank stocks fell 14 percent from their June high. Actions of Bank of America they slid 15 percent from their recent peak, while Citigroup is off 19 percent.

Mike Lewis, head of U.S. cash trading at Barclays, said that while he expected the short-term decline in the stock market crash, investors were no longer cooking in a powerful recovery. V-shaped.

“It’s clear that investors think the recovery may take a little longer and the reopening of the trade may not be as attractive.”

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