Stock market Why Is the Stock Market Down Today? Covid19 Fears Are Just One
Do's and don'ts during a stock market sell-off Mon, 19 Jul 2021 08:00:00 -0700-Covid-19 Delta variant fears were the trigger for a selloff on Monday. But markets were due for a correction. It could be a chance to buy the dip.
Investors were getting defensive on Monday, with stocks down, bond prices up, and commodities trading like there’s another Covid-induced recession coming.
While fears over the Delta variant of Covid-19 were the trigger for Monday’s selloff, they were also a chance for markets to blow off some steam after a long rally without a correction. Today’s selloff could open up buying opportunities for investors willing to fade those concerns and scoop up some suddenly discounted names.
Stocks of more cyclical and economically exposed companies were bearing the brunt of the declines on Monday. Around noon, the Dow Jones Industrial Average was down about 870 points, or 2.5%, while the S&P 500 lost 1.9% and the technology-heavy Nasdaq Composite fell 1.2%. The yield on the 10-year U.S. Treasury note dipped below 1.2% at one point, its lowest level since February.
The Delta variant, a more contagious mutation of the coronavirus, has quickly become the dominant strain in the U.S., accounting for the majority of infections in recent weeks. Centers for Disease Control and Prevention director Dr. Rochelle Walensky said Friday that the spread was concentrated in areas where vaccination rates were relatively low. Walensky added that although new daily cases were up 70% in a week, hospitalization and death rates were climbing less quickly.
Another surge of Covid-19 infections raises the specter of a fresh wave of lockdowns and restrictions that would hamper the economic recovery under way. And with inflation pressures firmly in place and commodity prices on the rise as supply chains struggle to keep up with demand, an ugly word comes to mind: stagflation, or surging inflation despite sluggish economic growth.
“The global economy is barely surviving on life support, and another wave of infections may spur lockdowns that could signal the death knell for the tenuous recovery,” said Peter Essele, head of investment management for Commonwealth Financial Network, on Monday. “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.”
The gloomy Covid news comes as market concerns had been building on several fronts. The fastest rate of inflation in years, uncertainty about a coming shift in Federal Reserve policy, and pricey valuations had already put stock investors on edge. Expectations are also high for the second-quarter earnings season currently under way.
A lot of good news had already been priced into the market, with major indexes hitting new highs last week. The S&P 500 is up 16% this year and hasn’t experienced a pullback of more than 5% since last fall, an environment ripe for some pullback in stock prices.
But that doesn’t mean it’s all doom and gloom for stock investors from here. Period corrections can be healthy for a bull market since they push valuations back in check, presenting buying opportunities for newly discounted stocks.
“The [S&P 500] is below its 20-day [moving average] this morning for the first time since mid-June, when a four-day pullback took hold,” wrote Katie Stockton, founder and managing partner at technical-analysis focused Fairlead Strategies, on Monday. “Short-term momentum is now to the downside, but we think the pullback will be similarly short-lived.
Furthermore, Stockton noted that the S&P 500 found support around its 50-day moving average of 4232 on Monday. The index was at about 4240 after noon.
Concerns about new Covid-related lockdowns on the horizon might be overblown at this stage in the pandemic. It’s safe to say there’s little appetite for continued or reimposed restrictions among Americans, and the Delta variant hasn’t been shown to cause severe infections in vaccinated individuals, keeping mortality low.
“We expect the reflation trade—cyclical stocks, bond yields, high beta stocks, reflation and reopening themes—to bounce imminently as Delta variant fears subside and inflation surprises persist, and due to supports from above-trend growth, strong consumer fundamentals, and a low earnings hurdle rate,” wrote J.P. Morgan’s chief global markets strategist Marko Kolanovic on Monday.
In other words, buy the dip. A 2020-style Covid lockdown in the U.S. shouldn’t be top of the list for investors with enough to worry about already.
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Why Is the Stock Market Down Today? Covid-19 Fears Are Just One … Mon, 19 Jul 2021 08:00:00 -0700-Do's and don'ts during a stock market sell-off · The stock market took a big dive on Monday. · Here's what nervous investors should keep in mind amid the volatility.
- The stock market took a big dive on Monday.
- Here's what nervous investors should keep in mind amid the volatility.
Virojt Changyencham | Moment | Getty Images
Stocks took a steep dive on Monday amid fears that the coronavirus pandemic will be hard to pull out of.
Despite the uncertain times, history has shown that the stock market gives more than it takes.
Between 1900 and 2017, the average annual return on stocks has been around 11%, according to calculations by Steve Hanke, a professor of applied economics at Johns Hopkins University in Baltimore. After adjusting for inflation, that average annual return is still 8%.
That's why Rob Williams, vice president of financial planning at Charles Schwab, says that “for longer-term investors, we suggest staying the course if they can.”
In fact, if you want to reap the rewards of investing, you'll have to sit through the losses.
Williams provided an example: Over the last 20 or so years, the S&P 500 produced an average annual return of around 6%. But if you missed the best 20 days in the market over that time span because you became convinced you should sell, and then reinvested later, your return would shrivel to 0.1%.
“Pain is a sign you're investing well,” said Allan Roth, a certified financial planner and founder of Wealth Logic in Colorado Springs, Colorado.
That being said, there are some moves antsy investors can take.
For example, you'll want to make sure you have enough cash reserves built up to cover any big upcoming expenses, including school tuition and planned vacations, said Milo Benningfield, a CFP and founding principal of Benningfield Financial Advisors in San Francisco.
“If not, consider raising cash from your portfolio now, rather than later after markets have fallen,” he said.
Meanwhile, older investors may want to tweak their portfolio to make sure they're ready to exit the workforce, said Doug Bellfy, a CFP at Synergy Financial Planning in South Glastonbury, Connecticut.
“I find that investors that are getting close to retirement do sometimes need to be coaxed to reduce risk and build cash reserves,” he said.
How much should you have in cash? At least two years' worth of living expenses, he said. “But more can be better if one has the ability to save up more,” he said.
That way if a bear market hits just before you retire, you won't need to dig into your portfolio at reduced prices.
“Avoid the temptation to cash out your investments completely,” Benningfield said. “You may have another two to four decades of spending to cover.”
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– July 19, 2021
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