Stocks fell Monday, losing some steam after rising to all-time highs late last week. Commodity prices tumbled as concerns over the coronavirus’s spread resurged, with crude oil prices moving sharply to the downside.
The S&P 500 fell as shares of oil companies including Occidental Petroleum (OXY), Apache Corporation (APA) and Diamondback Energy (FANG) dropped. The Dow also dipped, weighed down by a decline in shares of Chevron (CVX).
U.S. West Texas intermediate crude oil futures (CL=F) dropped more than 4% at session lows Monday morning to hover around $65 per barrel, extending a more than 7.5% weekly decline last week. Brent crude (BZ=F), the international standard, also dropped. Other commodities also dipped Monday morning, including with copper, silver and gold futures each moving lower by at least 1%. Treasury yields fell across the curve, and the benchmark 10-year yield retreated to below 1.28%.
The moves came amid mounting concerns over coronavirus infection rates and new restrictions in China, a major demand center for global commodities.
The world’s second-largest economy has implemented new measures including flight cancellations and other curbs on travel in some of the country’s hardest-hit areas to try and limit the spread of the virus. China’s National Health Commission last confirmed 125 new infections as of Sunday, up from 96 from a day prior.
“Virus numbers are still very low compared to other countries. But the spread of the Delta variant calls into question China’s ‘zero-COVID’ approach. Whereas most governments are now starting to acknowledge that we are likely to have to live with the coronavirus for the long term, China’s ambition remains to keep it out of the country altogether,” Neil Shearing, group chief economist for Capital Economics, wrote in a note Monday morning.
“Without a shift in approach, this suggests that China will have to continue with occasional local lockdowns and restrictions on movement,” he added. “This in turn will prevent a full return to pre-pandemic norms of consumer and business behavior, and is likely to mean that restrictions on foreign travel remain in place for some time to come.”
Concern over the Delta variant has also been evident in the quarterly earnings calls for a host of major corporations, raising the specter of another deceleration in consumer spending on services. Booking Holdings (BKNG) CEO Glenn Fogel said last week that rising COVID case counts and newly imposed travel restrictions “have led to a modest pullback” in travel booking trends in July compared to June. Likewise, Lumber Liquidator Holdings (LL) suggested investors “plan for slowing comparable sales” as the home renovation retailer works through potential consumer demand shifts and the potential impact of the COVID-19 delta variant,” Chief Financial Officer Nancy Walsh said during the company’s earnings call last week.
Still, however, a number of economists have underscored the ongoing strength in the U.S. economic recovery, even as new risks around the virus emerge. The U.S. economy added back more than 900,000 jobs in both July and June, last Friday’s jobs report showed, and separate surveys on manufacturing and services sector activity have pointed to continued expansion.
U.S. corporate earnings results, on the whole, have also been strong. As of Friday, 89% of companies in the S&P 500 had reported second-quarter earnings results, with 87% of these having topped Wall Street’s estimates for earnings per share, according to FactSet data. If this proportion holds, it would be the highest percentage of S&P 500 companies topping earnings estimates since at least 2008.
Quarterly earnings season continues this week with companies from Coinbase (COIN) to Disney (DIS) reporting results.
12:32 p.m. ET: Three key takeaways from earnings season, according to Goldman Sachs
A series of better-than-expected second-quarter corporate earnings results are continuing to roll in as company profits rebound from the height of stay-in-place orders last year.
But consistent with the market’s forward-looking nature, investors have largely been looking through these estimates-topping results and ahead to guidance.
According to David Kostin, Goldman Sachs chief U.S. equity strategist, there have been three main takeaways so far from companies’ earnings commentary.
“Companies expect to management rising input costs and expand margins by passing through prices or reducing costs; (2) Firms plan to use cash to fund growth investments or buybacks; (3) Tax reform and antitrust uncertainty represent risks to 2022 EPS and M&A activity,” Kostin wrote in a note.
“We reiterate our recommendation to tactically own beaten-down reopening stocks alongside strategic, high-quality growth stocks,” he added.
11:23 a.m. ET: Consumer inflation expectations held at record high in July: New York Fed
Inflation expectations among U.S. consumers held at a record high in July, with ongoing supply chain and labor constraints pushing up forecasts for price increases.
At the median, consumers expect inflation to rise by 4.8% over the next year, according to the New York Federal Reserve’s monthly survey. This matched June’s reading, which was the highest level in the survey’s history.
For the next three years, consumers expect inflation to rise by 3.7%, ticking up slightly from the 3.6% print from June and reaching the fastest pace expected since 2013. Expectations for home price increases, however, moderated to 6.0% rise over the next year, down slightly from the 6.2% seen in June.
11:07 a.m. ET: Growth and value stocks are ‘neck and neck so far this year’: Strategist
Despite Monday’s pullback, the S&P 500 is still hovering near an all-time high, powered higher by optimism over the economic recovery and rebounding corporate profits.
Beneath the surface, however, a back-and-forth has taken place in leadership between technology growth stocks and value stocks, especially in cyclical areas like energy and financials.
“Growth and value are actually neck and neck so far this year,” Emily Roland, John Hancock Investment Management co-chief investment strategist, told Yahoo Finance. “We’ve seen these huge shifts. Oftentimes it has been related to rates: So of course, the idea that as rates go up, that benefits more cyclical parts of the market, financials in particular, which is going to lift the value complex. And then when rates come down reflecting a more moderate growth backdrop, that typically rewards growth, or parts of the market that have longer-term cash flows that are discounted at a lower rate.”
“There is this big schism that seems to have opened up between growth and value investors. I’m here to tell you they can live together,” she added. “We want to embrace both in this market. Again that quality factor is going to be found more on the growth side of the house … but we want to have offense to play the cyclical recovery that continues to happen here in the U.S.”
10:00 a.m. ET: Job openings surged to a record high in June, topping 10 million
Job openings in the U.S. raced to an all-time high in June, further underscoring the extent of the labor shortages and demand still weighing on the overall pace of the economic recovery.
The Labor Department’s monthly Job Openings and Labor Turnover report showed that openings increased to 10.1 million in June. Consensus economists were looking for just under 9.3 million, according to Bloomberg data. May’s job openings were also upwardly revised to nearly 9.5 million, up from the 9.2 million reported previously.
The largest increases in job openings came in professional and business services at 227,000. Other areas of the service economy also posted elevated levels of job openings, with retail trade and food services job openings each at more than 120,000 as of the end of June.
The layoffs rate was unchanged in June versus May at 0.9%, which marked the lowest level on record.
9:32 a.m. ET: Stocks lower as commodity prices slide
Here’s where markets were trading shortly after the opening bell:
S&P 500 (^GSPC): -3.24 (-0.07%) to 4,433.28
Dow (^DJI): -80.15 (-0.23%) to 35,128.36
Nasdaq (^IXIC): +8.37 (+0.02%) to 14,837.80
Crude (CL=F): -$1.79 (-2.62%) to $66.49 a barrel
Gold (GC=F): -$18.90 (-1.07%) to $1,744.20 per ounce
10-year Treasury (^TNX): -1.6 bps to yield 1.272%
7:11 a.m. ET Monday: Stock futures trade mixed
Here’s where markets were trading Monday morning:
S&P 500 futures (ES=F): -6.25 points (-0.14%) at 4,423.25
Dow futures (YM=F): -104.00 points (-0.3%) to 34,987.00
Nasdaq futures (NQ=F): +25.25 points (+0.17%) to 15,120.75
Crude (CL=F): -$2.75 (-4.03%) to $65.53 a barrel
Gold (GC=F): -$12.90 (-0.73%) to $1,750.20 per ounce
10-year Treasury (^TNX): -0.6 bps to yield 1.282%
Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck
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