The Dow dropped 777 points, or 2.2%, exceeding a 2% decline seen in late January. The S&P 500 fell 1.9% with energy and industrial sectors as the worst performers. The Nasdaq Composite lost 1.6%.
The 10-year Treasury yield fell to a new five-month low of 1.19%, further exasperating fears about the slowing economy. Crude oil dropped 5%.
“You have two concerns coming together this morning: concerns about market technicals and concerns about growth,” Mohamed El-Erian, chief economic adviser of Allianz and former CEO of PIMCO said on CNBC’s “Squawk Box” Monday. “That’s what all the asset classes are telling you this morning.”
Covid cases have rebounded in the U.S. this month with the delta variant spreading among the unvaccinated. The U.S. is averaging nearly 30,000 new cases a day in the last seven days ending Friday, up from a seven-day average of around 11,000 cases a day a month ago, according to CDC data. Cases were already flaring up around the world because of the delta variant.
United and American Airlines shares lost more than 7%. Delta fell 6%. Along with shares of cruise lines and airlines, key stocks linked to the global economy pulled back. Boeing and General Motors each lost more than 5%. Caterpillar lost 3%.
“The market appears ready to take on a more defensive character as we experience a meaningful deceleration in earnings and economic growth,” wrote Mike Wilson, Morgan Stanley’s chief U.S. equity strategist, in a note Monday. “Market breadth has been deteriorating for months and is just another confirmation of the mid-cycle transition, in our view. It usually ends with a material (10-20%) index level correction.”
Wilson is advising clients to buy staples such as Mondelez International to weather the decline.
Oil prices fell on fears of slowing growth and as OPEC+ agreed to begin phasing out production cuts. Energy stocks were among the worst performers in the market, with with ConocoPhillips off by more than 3%. Exxon Mobil lost 3%. WTI crude shed 6% to about $68.12 a barrel.
Banks took a hit as yields fell, crimping their profitability prospects. JPMorgan and Bank of America each dropped about 2.5%.
Big Tech shares were not immune to the sell-off with Apple and Alphabet each down more than 2%.
Yet certain defensive stocks gained amid the market sell-off. Walmart and Procter & Gamble shares traded into the green, along with many utilities stocks.
Despite Monday’s decline, the overall damage to the market remains tame. The S&P 500 is still just 3% below its record reached last week and investors are hoping more better-than-expected earnings results will put a bottom under the market.
A busy week of earnings is on deck, with nine Dow components set to report and 76 S&P companies will provide quarterly updates. United Airlines and American Airlines will report, as will social media companies Snap and Twitter. CSX, Johnson & Johnson, Coca-Cola, Honeywell, IBM, Intel and Netflix are also on the docket.
Get stock picks, analyst calls, exclusive interviews and access to CNBC TV.
Sign up to start a free trial today
Read More: Dow drops more than 700 points on Monday, heads for worst decline of 2021