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Investors in the $ 51 trillion stock market are coming to the view that the spread of the Delta coronavirus variant will slow the global economic recovery, threatening an unprecedented rebound.
The benchmark S&P 500 index on Wednesday fell further by one month before making a small profit on Thursday. Large stock indices in Europe and Asia closed lower on Thursday.
Signs of a slowdown in the recovery have been accumulating in recent weeks as the coronavirus spreads again, and polls point to weaker growth in business activity in several regions of the US, as well as a deterioration in consumer confidence trends. Tuesday’s data added to concerns faced by investors, such as retail sales in the country it fell faster than expected. Weak economic data from China has only heightened concerns.
Along with signs that Federal Reserve policymakers are preparing to cut emergency stimulus measures in the coming months, money managers expressed doubts about the ability of stocks to rise beyond already levels. elevated.
Trading in the options markets underscored investors’ cautious outlook, as many traders on Thursday turned to derivatives that would protect against falling equity values. And data from the Investment Company Institute showed investors were added to government money market accounts for the second week in a row as they turned to cash.
“The market is at all-time highs,” said Jim Tierney, AllianceBernstein portfolio manager. “Look where we have come in a year . . . Notice the high price-earnings ratios. You put a lot of that together and people are nervous and their inclination is, ‘Let me get some money off the table.
Rising coronavirus cases linked to the more contagious Delta variant prompted Goldman Sachs economists on Wednesday to cut their forecast for US growth in the third quarter by nearly half. They now predict a 5.5 percent expansion in gross domestic product between July and September, a sharp drop from their previous estimate of 9 percent. That dragged its forecast for the full year 0.4 percentage points to 6 percent for 2021.
“The impact of the Delta variant on growth and inflation is proving to be somewhat greater than we expected,” the bank’s economists said. “Spending on food, travel and some other services is likely to decline in August, although we expect the decline to be modest and brief.”
Federal Reserve officials also appear to be more in tune with the risk that the economy will not reopen, or that the job market will not recover, as smoothly as initially expected, given Covid-19 concerns. President Jay Powell made the case in the last monetary policy meeting in July that the economic impact of the Delta variant may not be as significant as previous outbreaks, but the minutes from that meeting suggest increased awarenessthat emerging cases could delay any turn away from its stimulus.
“Covid risks are re-emerging as a really big downside risk,” said Jonathan Millar, a senior US economist at Barclays. “He’s back in the [Fed’s] Radar and the writing of the minutes gives them the freedom to stop the set-up. ”
Yields on Treasuries, the backbone of global financial markets, have exploded this month. But in recent days they have slid toward a six-month low, underscoring persistent demand for safe havens as the economic outlook has become more confusing.
“Nobody points to things and says they’re cheap,” said John Leonard, global director of equities at Macquarie Asset Management. “The argument is that we all know that the party has to end at some point, but it is not yet time to leave the party because the alternatives are quite unappealing.”