‘Crisis In Confidence’: Stocks Poised To End Worst Week In Two Months—But Traders Expect Drop Could Only Continue
"Stocks on Friday started to pare back big losses this week as growing regulatory scrutiny in China added to economic uncertainty in the U.S.— stemming from the delta variant's ongoing spread and political unrest in Afghanistan—and new findings from Charles Schwab show traders expect the recent rise in volatility could only get worse.
Key Facts
Shortly after the market open, the Dow Jones Industrial Average ticked up 77 points, or 0.2%, bringing losses since last Friday to roughly 1.5% and putting the index on track for its worst weekly showing since inflation fears rocked markets in mid-June.
Meanwhile, the S&P 500 ticked up about 0.4% to 4,424, while the tech-heavy Nasdaq climbed 0.7%; the indexes are down about 1% each this week.
In a Friday morning email, Rod von Lipsey, a managing director at UBS Private Wealth Management, pointed out investors are grappling with concerns over upticks in Covid-19 cases and a "downward spiral in Afghanistan"—two factors he says are already hurting consumer sentiment and travel during a "historically volatile" month for stocks.
In a report released Friday, Charles Schwab found about 33% of more than 500 active traders surveyed have already changed their trading strategy due to the delta variant, with another 50% saying they may in the future.
About 59% of respondents said they expected more volatility in the second half of the year, compared to the first half, and 87% said they were concerned of a market setback due to Covid-19's resurgence.
Though stocks like JPMorgan, oil giant Chevron Corp and industrial conglomerate 3M Company headed up market losses Friday morning, von Lipsey believes financials, energy and industrials firms are poised to outperform the market the rest of this year given expectations that U.S. gross domestic product should recover to pre-pandemic levels by the fourth quarter.
Tangent
Investor sentiment also took a hit from tumbling stocks in China, where Hong Kong's Hang Seng index plunged 1.8% Friday to its lowest point since November. "China remains a huge source of global concern," Vital Knowledge Media Founder Adam Crisafulli wrote in a Friday email, adding: "The anxiety is spreading beyond just technology amid signs the government is embarking on a massive regulatory campaign encompassing all major industries." Beijing officials unveiled new antitrust rules this week in an effort to curb "excessive" wealth, and U.S.-listed shares of ecommerce giant Alibaba fell nearly 15% as a result.
Contra
Despite this week's market uncertainty, a slew of earnings reports this month have pointed to ongoing strength for stocks. "It’s hard to get too gloomy about stocks given how superb corporate earnings are," says Crisafulli, pointing out companies like Foot Locker and Deere & Co. are jumping 13% and 2%, respectively, Friday morning after better-than-expected results. They follow big-box and department-store retailers like Walmart, Target and Macy's in posting blow-out second quarter earnings.
Key Background
After crashing last March, the market posted its quickest recovery in history during the pandemic, but experts have increasingly worried that rapidly spreading variants could once again halt economies. “The impact of the delta variant on growth and inflation is proving to be somewhat larger than we expected,” Goldman Sachs analysts, who earlier this summer said the variant’s economic impact should only be “modest,” wrote in a Thursday morning note to clients. Though they hoped surging prices on new cars, electronics and appliances could moderate this quarter, they now expect the delta variant will likely prolong supply-chain disruptions and lead to higher prices for the rest of the year."
Further Reading
Dow Falls Another 200 Points After Fed Reveals Growing Concerns Over Delta Variant And Inflation (Forbes)
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