Markets wrap: U.S. stocks extend drop on growth, valuation risks
U.S. equities retreated as investors reassessed valuations in light of global economic risks including the spread of the Covid-19 delta variant and reductions in central bank stimulus.
The Nasdaq 100 notched its biggest drop in two weeks, with losses in megacaps including Apple Inc. and Facebook Inc. among the biggest contributors to the decline. The S&P 500 fell for a third day since it closed at a record on Sept. 2. The Dow Jones industrial average extended its retreat from last month's all-time high to more than 1.5%. Europe's Stoxx 600 dropped to a three-week low. Cryptocurrency-exposed stocks slumped as a selloff in Bitcoin continued.
Wednesday's declines came as money managers from Morgan Stanley to Citigroup have turned cautious on U.S. equities. Many investors have begun to see relative U.S. valuations as excessive even as growth elsewhere suffers from renewed Covid lockdowns and travel curbs. They doubt the world is ready for an eventual tapering of central-bank stimulus even as inflation accelerates due to supply shocks. End-of-year seasonality and valuation concerns are adding to the gloomy mood.
"Momentum definitely seems to be slowing as far as the recovery is concerned," Fiona Cincotta, a senior financial markets analyst at City Index, said by phone. "Before we'd been hearing that the Fed would tighten monetary policy and that's what was unnerving the market. Now, it's actually slightly softer data and also rising Covid cases."
Morgan Stanley this week cut U.S. stocks to underweight and global equities to equal-weight, citing "outsized risks" to growth through October. Extremely bullish positioning means corrections can be amplified, Citigroup said. Credit Suisse Group AG said it has a small underweight on the U.S. market.
In Europe, growth concerns were compounded by speculation that the European Central Bank is getting ready to slow down emergency stimulus. EQT AB slumped in Stockholm after partners in the private equity firm sold a part of their holdings earlier than expected.
Meanwhile, the continued spread of Covid-19 is curbing economic activity around the world. The Philippines backtracked on easing curbs in the capital region, while Japan may extend state of emergency orders. Taiwan identified a delta variant outbreak in New Taipei City.
Equities climbed for an eighth day in Japan, supported by hopes for economic stimulus from the next prime minister. Pakistan's stocks benchmark slid to the lowest since May after MSCI downgraded the country to a frontier market from an emerging market.
Bitcoin posted second-day losses in the wake of El Salvador's rocky implementation of a law that makes the cryptocurrency legal tender. Coinbase Global Inc. slumped after the Securities and Exchange Commission warned the company against launching a product that would allow consumers to earn interest on their crypto holdings. Other crypto-linked stocks also fell, including declines of more than 5% in Marathon Digital Holdings Inc. and Riot Blockchain Inc.
What to watch this week:
- U.S. President Joe Biden may make his choice this week on whether to renominate Fed Chair Jerome Powell to a second term
- ECB President Christine Lagarde holds a press conference after the bank's rate decision Thursday
- China PPI, CPI, new yuan loans, money supply, aggregate financing, Thursday
Some of the main moves in markets:
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- The S&P 500 fell 0.1%
- The Nasdaq 100 fell 0.4%
- The Dow Jones Industrial Average fell 0.2%
- The MSCI World index fell 0.4%
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- The Bloomberg Dollar Spot Index rose 0.1%
- The euro fell 0.2% to $1.1819
- The British pound was little changed at $1.3774
- The Japanese yen was little changed at 110.27 per dollar
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- The yield on 10-year Treasuries declined four basis points to 1.34%
- Germany's 10-year yield was little changed at -0.32%
- Britain's 10-year yield was little changed at 0.74%
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- West Texas Intermediate crude rose 1.4% to $69.34 a barrel
- Gold futures fell 0.4% to $1,791 an ounce
