Just last Friday, the S&P 500 had closed at a record high. This week, the stock market can’t seem to find its footing, with the major indexes slumping again Tuesday.
The Dow Jones Industrial Average dropped 256.33 points, or 0.8%, the S&P 500 fell 0.7%, and the Nasdaq Composite finished off 0.9%.
It’s been a while since the stock market had a meaningful drop, and this one may not actually qualify. This was the S&P 500’s largest drop since just March 23, so the current pullback may not be worth getting excited about. Then again, it could be the start of something bigger. Here are four reasons markets fell today.
Covid Cases are rising globally. The seven-day average hit 628,035 on April 10, up 63% from 384346 on Feb. 28. Global cases have topped 142 million, and India recently reported more than 250,000 cases on its own. The continued spread threatens to overwhelm the positive narrative about vaccines in the U.S. Reports that India’s Prime Minister Narendra Modi is set to address the country and that a full lockdown could but put in place has only spooked the market further.
The vaccine narrative is weakening. The market opened lower this morning, but the drop really accelerated when the European Medicines Agency announced that it had found a possible link to very rare cases of blood clots in users of Johnson & Johnson’s (JNJ) vaccine, and said a warning should be added. That overwhelmed its conclusion that the ‘overall benefit-risk remains positive’ for the vaccine because it could mean fewer people get vaccinated. Even before the latest announcement, confidence was eroding. “It doesn’t seem likely that the SARS-CoV-2 virus is going to completely disappear anytime soon,” JPMorgan strategists concluded in a report released Tuesday. “The lack of a vaccine for those aged under 18 years, the less than 100% take-up of vaccines, the less than 100% efficacy of vaccines and the development of variants mean that the prevalence of infection will remain for a long time, even if at a low level.”
The reopening narrative is weakening. United Airlines (UAL) earnings were worse than expected. The U.S. State Department put 80% of the world’s nations on a “do not travel” list due to high levels of Covid. And the worst performing stocks are part of the reopening trade. Norwegian Cruise Line Holdings (NCLH) closed down 4.4%, American Airlines (AAL) slid 5.5%, Marriott International (MAR) fell 4%, Devon Energy (DVN) slumped 4.8%, and Zions Bancorp (ZION) has tumbled 6.5%. That pretty much says it all right there.
Investors are questioning the economic recovery. At this point, everyone knows that the economic recovery is going to be strong. When even the International Monetary Fund realizes that’s the case, you know it’s consensus. Now, the market is wrestling with whether growth has peaked or if there’s further acceleration ahead. With little economic data to shift the narrative this week, investors are asking “what have you done for me lately.”
None of this means a bear market is ahead of us, and just because investors are embracing a narrative, doesn’t mean that’s how the future plays out. It is the future, after all. But the market is always trying to adjust to greater risk after a massive rally. Perhaps a little more volatility is warranted.
Write to Ben Levisohn at Ben.Levisohn@barrons.com
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