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NEW YORK – Concerns over the resurgent pandemic push Wall Street shares in Sydney down on Monday, fueled by fears that faster-spreading variants of the virus could upend the strong economic recovery.
The S&P 500 was down 1.5% at midday, after setting a record a week earlier. In another sign of concern, the 10-year Treasury yield fell to its lowest level in five months as investors scrambled to find safer places to put their money.
The Dow Jones Industrial Average was down 749 points, or 2.2%, to 33,938 at 11:35 a.m. Eastern time. The Nasdaq composite was 0.9% lower.
Airlines and the shares of other companies that would be most affected by potential COVID-19 restrictions suffered some of the heaviest losses, similar to the early days of the pandemic in February and March 2020. Mall owner Simon Property Group fell 4.9%, and cruise line Carnival lost 4.3%.
The decline also circled the world, with several European markets sinking nearly 3% and Asian indices a little less. The benchmark US crude price, meanwhile, fell more than 6% after OPEC and allies agreed on Sunday to possibly allow higher oil production this year.
The increased concerns about the virus may seem strange to people in parts of the world where masks come off, or have already done, thanks to COVID-19 vaccinations. But the World Health Organization says cases and deaths are increasing globally after a period of decline, spurred by a more infectious variant of the virus. And given the tight connection of the global economy, one hit anywhere anywhere can quickly affect others halfway around the world.
Experts say Indonesia has become a new epicenter for the pandemic as epidemics worsen in Southeast Asia. Meanwhile, some athletes have tested positive for COVID at the Olympic Village in Tokyo, with the Games scheduled to open on Friday.
In Japan, the world’s third-largest economy, vaccine deployment came later than in other developed countries and has stagnated of late. In Australia, the two largest cities of Sydney and Melbourne remain stranded to contain an outbreak caused by the most contagious delta variant.
Even in the United States, where the vaccination rate is higher, residents of Los Angeles County are once again required to wear masks indoors, whether or not they are vaccinated. The rule went into effect on Saturday evening in hopes of reversing the latest spike in coronavirus cases, hospitalizations and deaths, mostly among unvaccinated people.
Financial markets have been showing signs of heightened concern for some time, but the US stock market has remained largely resilient. The S&P 500 has seen only two weeks of decline in the past eight, and the last time it even fell 5% from a record high was in October.
The bond market, however, was louder in its warnings. The 10-year Treasury yield tends to move with expectations of economic growth and inflation, and has been declining since March, when it was 1.75%. It was at 1.20% Monday morning, against 1.29% Friday night.
Analysts and professional investors say that a long list of reasons is potentially behind the sudden movements in the bond market, which is seen as more rational and sober than the stock market. But at the heart is the risk that the economy will have to slow down sharply from its current extremely high growth.
Along with new variants of the coronavirus, other risks to the economy include dwindling pandemic relief efforts from the US government and a Federal Reserve which is expected to start cutting aid to markets later this year.
Concerns about a possible sharp slowdown were particularly hard on stocks whose earnings are most closely linked to the strength of the economy. Small business stocks, for example, have been struggling since peaking in March, even though numerous reports show the economy continues to grow at a very healthy pace.
The Russell 2000 index for small stocks fell a further 0.9% on Monday.
The selling pressure was widespread, with nearly 90% of the S&P 500 shares falling. Even Big Tech shares were down, Apple down 1.9% and Mircrosoft 1.3%. During the initial hiccups of the stock market, investors often made additional bids on these stocks with the expectation that they would continue to grow almost no matter how strong the economy was.
The losses came despite several companies reporting even stronger earnings growth from April to June than analysts expected. Tractor Supply said its profits and revenue exceeded Wall Street expectations, but its stock fell 7.2% nonetheless.
Across the S&P 500 as a whole, analysts are forecasting earnings growth of nearly 70% for the second quarter from a year ago. It would be the strongest growth since 2009, when the economy was emerging from the Great Recession. But just as concerns grow that the economy’s growth has already peaked, analysts are trying to limit slowing growth rates over the next few quarters and years for corporate earnings.
In Europe, the German DAX lost 2.8% and the French CAC 40 fell 2.7%. The FTSE 100 in London fell 2.4%.
In Asia, Japan’s Nikkei 225 lost 1.3%, Hong Kong’s Hang Seng fell 1.8%, South Korea’s Kospi lost 1%. Australian stocks fell 0.9%.
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AP Business Writer Yuri Kageyama contributed.
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