U.S. stock benchmarks traded lower late-morning Monday, with the Dow and S&P 500 looking at their first decline in five sessions, as weaker-than-forecast Chinese economic data and the Taliban takeover of Afghanistan weighed on sentiment.
How are stock benchmarks performing?
Last week, the S&P 500 tacked on 0.7% and registered its 48th record close of 2021. The Nasdaq Composite registered a 0.1% dip, its second fall in three weeks. Both the S&P 500 and the Dow since Friday have registered four straight gains.
What’s driving markets?
A number of international and local developments cast a pall over the otherwise bullish mood on Wall Street, following a weekend of unrest in the Middle East and growing concerns about the spread of delta variant of COVID-19.
On a daily basis, the seven-day average for new COVID-19 cases rose to 130,808 as of Sunday, according to a New York Times tracker, up 64% from two weeks ago, to mark the 11th straight day above 100,000 and the highest rate since Feb. 3. The seven-day average of deaths was 662 on Sunday, up 113% from two weeks ago and the highest since early May, while the number hospitalized has increased 65% to 76,088.
Data released out of China showed retail sales, industrial production and fixed-asset investment all rising slower than forecast. “The slowdown is now plain for all to see. The delta outbreak and return of shutdowns across China isn’t helping either of course,” said Arne Petimezas, senior analyst at AFS.
“The Chinese data overnight is going to feed into the near-term uncertainty in the country as it desperately tries to get its Covid outbreak under control early,” wrote Craig Erlam, senior market analyst at Oanda, in a daily research note.
Meanwhile, the New York Fed’s Empire State business conditions index in August lost nearly all of its record-setting gains from the prior month. The headline general business conditions index fell to 18.3 in August, from 43, the regional Fed bank said Monday. Economists expected a reading of 30, according to a survey by Econoday.
To be sure, any reading above zero indicates improving conditions, but the sharp decline raises some concerns about the impact of delta’s spread.
That manufacturing report follows a stunning drop in the University of Michigan’s gauge of consumer sentiment, which was described as a “stunning loss of confidence.”
News headlines on Monday also have been focused on developments in Afghanistan, where the Taliban has swiftly taken power after the withdrawal of U.S. forces, leading some to wonder if political fallout will extend beyond foreign policy.
“For [President Joe] Biden, the developments in Afghanistan have created some unwelcome headlines just as further progress was being made on his economic agenda, with the Senate passage of the infrastructure bill with bipartisan support last week,” said Henry Allen, strategist at Deutsche Bank.
Reports indicated that President Biden plans to speak about the regime change in Afghanistan at 3:45 p.m. Eastern on Monday.
Meanwhile, a Wall Street Journal report, citing public statements and interviews, said a string of strong employment reports has strengthened the case for the rate-setting Federal Open Market Committee to announce its intentions to begin tapering its monthly purchases of $120 billion in Treasurys and mortgage-backed securities at its next meeting, on Sept. 21-22. Some strategists think the Fed may use an annual economic symposium in Jackson Hole, Wyo., on Aug. 26-28 as an opportunity to hint at tapering timing.
“Despite splintering views within the FOMC, we look for the committee to announce plans for QE tapering as soon as the September 21-22 policy meeting, with tapering commencing in early 2022, or possibly earlier in late 2021,” wrote Kathy Bostjancic, chief U.S. financial economist, in a research note.
“With so much seemingly riding on the Fed in the coming weeks, I wonder whether we may see some more caution now in the run up to next week’s Jackson Hole event, when Jerome Powell may lay the groundwork for a tapering announcement in September,” wrote Erlam.