COVID-19 and its increasingly problematic variants rose from a dull background hum to the center of attention Monday, as a cascade of market declines across the globe eventually made their way to the U.S., sending the Dow to its worst drop in months.
"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," says Peter Essele, head of investment management for Commonwealth Financial Network, who highlighted the drop in 10-year Treasury yields to their lowest levels since early 2021.
"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."
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Perhaps unsurprisingly, the worst sectors of the day were energy (-3.6%) and financials (-2.8%) – two areas of the economy that would feel the brunt of a COVID economic backslide the most.
The major indexes all finished lower Monday, but the Dow Jones Industrial Average (-2.1% to 33,962) took the worst of it, suffering its biggest single-day decline since Oct. 28, when the index plunged 3.4%.
The S&P 500 Index shed 1.6% to end at 4,258. "Broad-based selling this morning easily pushed the S&P 500 through our initial level of 4,285 – watch for bounces that close above this level, as the index is now getting oversold on a short-term basis," says Dan Wantrobski, technical strategist at Janney Montgomery Scott. "Declines thus far have been halted at the 50-day moving average, which is currently near 4,240."
Other action in the stock market today:
- The Nasdaq Composite gave back 1.1% to end at 14,274.
- The small-cap Russell 2000 dropped 1.5% to 2,130.
- Zoom Video Communications (ZM) was in focus today thanks to some M&A news. The videoteleconference name said it is buying cloud call center firm Five9 (FIVN) for $14.7 billion in stock. This marks one of the biggest U.S. tech deals of 2021, coming in just behind Microsoft's (MSFT) $16-billion bid for Nuance Communications (NUAN), per FactSet. ZM ended the day down 2.2%, while FIVN jumped 5.9%.
- Not everyone finished the day in the red. Several stay-at-home stocks – those that did well when everyone was stuck inside when the economy shutdown – got a lift as COVID-19 fears ramped up. Among those that got a lift today were online pet supplier Chewy (CHWY, +6.8%), meal kit specialist Blue Apron (APRN, +8.7%) and food delivery name DoorDash (DASH, +4.9%).
- U.S. crude oil futures plummeted 7.5% to end at $66.42 per barrel, marking their biggest one-day slump since Sept. 8. Black gold was hit by rising COVID-19 concerns and news the Organization of the Petroleum Exporting Countries (OPEC) and its allies agreed to raise global crude output to pre-pandemic levels.
- Gold futures slipped 0.3% to $1,809.20 an ounce.
- The CBOE Volatility Index (VIX) spiked 22% to 22.50 – its highest point since May.
- Bitcoin shed 3.7% to $30,757.94. (Bitcoin trades 24 hours a day; prices reported here are as of 4 p.m. each trading day.)
- Second-quarter earnings season starts picking up speed tomorrow, with Netflix (NFLX) set to report. You can check out the full earnings calendar here.
What to Do Next
An unwelcome move? Certainly. But today's action is likely not a shock to regular readers of Closing Bell.
Experts have been issuing warnings about the potential for summer market volatility for months – and they don't necessarily think we've seen the last of it. "The S&P 500 hasn't had a 5% correction since October," says LPL Financial chief financial strategist Ryan Detrick, "so you could say we are more than due for some turbulence."
A natural reaction might be to pull some risk out of your portfolio. You might even want to raise cash for buying purposes should this dip get even deeper. Either way, take the time to get refreshed on how to go to cash. That said, we can't overstress the financial and psychological importance of simply buying and holding, while occasionally making small, tactical tweaks along the way.
Today's pockets of relative strength – technology and healthcare stocks, for example – hint that some sectors could hold up better than most if COVID variants put a pause in global reopenings.
That goes for consumer staples, as well, which suffered the least of any sector Monday and traditonally provide both lower volatility and dividends to investors looking for defense.
Of course, these tweaks should be made around a solid core portfolio, which you can easily build with diversified, low-cost funds. Not sure where to start? (Or just looking for a few ideas to round out your current holdings?) We suggest you catch up with the Kip 25 – Kiplinger's favorite actively managed no-load funds.
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