Delta rises, confidence falls: a cold shower just rained on the stock market's parade

Tuesday, July 20, 2021 by Robinhood Snacks | Disclosures
_Investors cranking out the umbrellas like [praetorianphoto/E+ via GettyImages]_

Investors cranking out the umbrellas like [praetorianphoto/E+ via GettyImages]

"In the red"... Not a phrase we've heard recently re: the stock market. The market closed lower last week, after rallying to records for three weeks in a row. Yesterday, things got worse for the major stock indexes.

  • The Dow was the worst performer, plunging more than 2% in its biggest one-day drop of the year. The elite index tracks the stocks of 30 large US companies, and it's heavy on cyclicals —  aka: stocks that tend to move in tandem with the health of the economy.
  • The S&P 500, which tracks the stocks of the 500 most valuable US companies, dropped 1.6%. Travel, energy, and financial companies (all cyclicals) were the worst-performers. Airlines and cruise companies plunged.
  • The Nasdaq, the tech-heavy index which tracks 3K+ stocks, fell 1%.

Cloudy with a chance of N-95 masks... A surge in Covid cases driven by the highly-contagious Delta variant is pouring cold water on recovery optimism. Ballooning Covid cases — mostly among the unvaccinated — in highly-vaxed countries like the US and the UK have dampened investors' expectations of economic growth. The CDC is calling the US surge "a pandemic of the unvaccinated." A few big counties, including LA, brought back indoor mask mandates last week. Meanwhile in developing countries, the situation is more dire.


The market mood has shifted... again. Stock market prices aren't just a product of fundamentals like profits, but also of human psychology. Stocks have been basking in Caribbean-level sunshine, but investors are starting to fear clouds ahead. The VIX, which measures the stock market's expectation of volatility, has soared 36% in the past five days. As Delta rises, confidence is waning: US consumer sentiment plunged in early July to its lowest level in five months. Sharp price increases in everyday items could also be knocking confidence in spending. It's TBD how long this shift will last.