Stocks fell on Thursday and bond yields fell as anxiety over the bumpy economic recovery rocked financial markets.
The S&P 500 slipped as much as 1.6% before gaining ground. At the end of the trading session, the index was down around 0.9%, a more modest drop but one that stood out against the relatively calm tone of financial markets in recent weeks.
Prior to Thursday, stocks had fallen only twice in the previous 13 trading days, with the S&P 500 being in record territory for much of that period. Thursday’s drop was Wall Street’s worst performance since mid-June.
But investors in the bond market have been reporting concerns about the economy for days. Yields on 10-year Treasuries, a benchmark for borrowing costs in the economy and a measure of growth prospects, have fallen sharply since late June.
Yields fall when traders buy bonds, which they do when worried about the economy or other factors that could threaten riskier investments. On Thursday, the yield on the 10-year note fell further, falling to 1.25% before rising somewhat to 1.30%.
“There are growing concerns about the strength of the economic recovery,” said Edward Moya, senior market analyst at Oanda, a foreign exchange bureau. “The virus that has spread to other countries is starting to suggest we won’t have a solid second half of the year.”
Not so long ago, investors were more concerned about the prospect of the economy overheating as nations emerge from lockdowns. Key measures of inflation have become important data points for financial markets, as persistent price increases could prompt the Federal Reserve to start pulling back from policies that support the economy.
Although the Fed has said it is far from that point, the minutes of its mid-June meeting released on Wednesday showed central bank officials are increasingly divided on the way forward.
On Thursday, the Labor Department announced that the state’s new jobless claims rose slightly last week to 370,000, from the 350,000 expected by economists.
“This illustrates the argument that we are a long way from making substantial further progress for the economy to justify removing the Fed’s accommodation,” Moya said.
The rise of the highly contagious Delta variant of the coronavirus recalled that the pandemic remains a threat to both public health and the economy, even though infections and deaths in the United States are near their lowest levels since testing became widely available.
Last month, World Health Organization officials urged even fully vaccinated people to continue wearing masks and taking other precautions, and those responsible for Los Angeles County reinstated a mask policy, recommending that everyone wear masks indoors in public places.
On Wednesday, the Centers for Disease Control and Prevention estimated that the Delta variant now accounted for more than half of new infections in the United States, and on Thursday, Olympic organizers said they would ban spectators from most events after the declaration of a new state of emergency in Tokyo, a stark reminder of how quickly the pandemic can derail plans.
Shares of economically oriented companies were all weaker. JPMorgan Chase fell 1.7% along with shares of many other banks, while mining company Freeport-McMoRan fell 4.2% and rail operator CSX fell 6.2%.
Concerns about the pandemic were also evident in the volatile trade of travel and tourism companies, which was volatile on Thursday. Carnival Corp. fell 1.5%, while Norwegian Cruise Line fell 1%.
Investors are also weary of China’s latest crackdown on tech companies. Policymakers in Beijing this week said they would aim to step up surveillance of Chinese companies, like the carpooling application Didi, which has listed its shares on stock exchanges abroad.
“This raises wider concern about what China might do with its global equity platform and poses a risk if they force even more Chinese companies to pull out of the global market,” John Canavan, analyst principal at Oxford Economics. , noted. “This could further exacerbate some of the fairness issues.”
Chinese tech stocks fell sharply on Thursday. The Didi rideshare app fell 5.8%, while the Full Truck Alliance truck delivery app fell 10.9%.