Stocks reverse to red, oil slips amid Delta variant anxiety

BOSTON (REUTERS) – US stocks reversed course on Monday (Aug 2) to finish slightly lower, echoing a decline in oil and Treasury prices, as economic worries related to the Delta variant of the coronavirus outweighed optimism about infrastructure spending and corporate earnings.

Stocks initially cheered the announcement on Sunday by US senators of around US$1 trillion in proposed infrastructure stimulus. A rebound in corporate profits also bolstered the case for owning stocks, even as markets stand near records and economic growth is expected to slow.

Those factors helped push the S&P 500 index to a near all-time high on Monday morning, but the benchmark basket ultimately retreated to lose 8.1 points, or 0.18 per cent, to 4,387.16 The Dow Jones Industrial Average fell 97.31 points, or 0.28 per cent, to 34,838.16, and the Nasdaq Composite added 8.39 points, or 0.06 per cent, to 14,681.07.

The MSCI world equity index, which tracks shares in 49 countries, gained 0.37 per cent.

“The Delta variant still represents the most immediate threat to the outlook,” JPMorgan market strategists wrote in a note on Monday.

But the bank’s outlook cited a surprise decline in British and European Covid-19 cases and positive second quarter economic data from the United States and Europe: “Constructive news last week on Delta and growth trims downside risks.” The risks were not lost on other markets, including in energy. Oil prices tumbled about 3 per cent on Monday as weak economic data from China and the US, the world’s top oil consumers, and higher crude output from OPEC producers stoked fears of weakness in oil demand and oversupply.

Brent settled at US$72.89 (S$98.63) a barrel, down 3.3 per cent on the day, while US crude fell 3.6 per cent to US$71.26 per barrel.

US manufacturing continued to grow in July, though the pace slowed for the second straight month as spending rotates back to services from goods and shortages of raw materials persist.

Factories around the world are suffering from supply bottlenecks, which sent prices skyrocketing in July, while a new wave of coronavirus infections in Asia demonstrated the fragile nature of the global recovery.

Treasuries Benchmark 10-year notes last rose 18/32 in price to yield 1.1806 per cent, but were still down from 1.239 per cent late on Friday and continuing a multi-month decline.

Negatively interpreting lower Treasury yields, however, could be a mistake, according to Morgan Stanley strategist Guneet Dhingra.

“Investors are fitting a narrative of excessive pessimism to lower yields,” Dhingra wrote in a note on Sunday, noting low hospitalisations in Britain from the Delta variant, “suggesting overstated downside risks from Covid-19.” The dollar fell back toward the one-month lows hit last week when it became clear the Fed was in no hurry to tighten policy.

As of late Monday afternoon, the dollar index fell 0.028 per cent, with the euro down 0.02 per cent to US$1.1868.

Spot gold dropped 0.1 per cent to US$1,812.70 an ounce as an uptick in risk appetite took some shine off the safe-haven metal. US gold futures settled up 0.3 per cent at US$1,822.20.