US stocks posted their biggest daily drop since late March on Monday, with Treasuries and the dollar also coming under pressure, as investor sentiment swung from cheering strong economic data to concern over the worsening global coronavirus situation.
After hitting its latest record high last week, the S&P 500 slipped 0.5 per cent, the US blue-chip index’s biggest daily drop since late March. The technology-focused Nasdaq Composite fell almost 1 per cent, dragged lower by energy and basic materials stocks.
The S&P 500 had risen for four consecutive weeks while Treasuries had rallied alongside stocks, as investors bought into an economic growth trend and banked on continued policy support from the Federal Reserve.
Markets were now “positioned for a regime change”, said Francesco Sandrini, head of multi-asset investments at the fund manager Amundi.
“The Covid-19 dynamics in the short term do not look easy to tackle,” he added — especially in larger emerging markets such as India and Brazil.
This had made investors unsure whether the world would achieve “that really strong growth over the next six months that markets were pricing in, or something more anaemic”, he said.
The dollar, as measured against a basket of currencies, weakened 0.5 per cent to hit a six-week low. Demand for government debt also dropped on Monday. As prices dipped, the yield on the benchmark 10-year US Treasury note rose 0.02 percentage points to 1.6 per cent, while the yield on the equivalent German Bund increased by 0.03 percentage points to minus 0.23 per cent.
Data released last week showed US homebuilding surged to a near 15-year high in March while retail sales increased by the most in 10 months. And Fed chair Jay Powell told the Economic Club of Washington DC that the US central bank would not taper its $120bn of monthly asset purchases until it saw “substantial further progress” towards full employment.
But over the weekend the number of deaths from the pandemic passed 3m globally and the UK registered new cases of a Covid-19 variant from India on top of another first discovered in South Africa.
Yuko Takano, equities portfolio manager at Newton Investment Management, said that reopening trades that involved buying up shares in banking, industrial and consumer businesses whose fortunes were pegged to an economic rebound were “starting to fade”.
Markets that had cheered a strong vaccine rollout in the US and President Joe Biden’s $1.9tn stimulus may have “crossed over into needing something new to look forward to”, she said.
Multinationals including Procter & Gamble and American Express report quarterly earnings this week, which investors will scrutinise for clues about consumer spending in emerging markets and whether supply chain bottlenecks caused by the pandemic are damaging the bottom lines of businesses.
Earlier on Monday Coca-Cola described its global markets as “asynchronous”, with demand improving in regions where vaccines had been deployed quickly while sales in other parts of the world were not expected to follow suit until normal mobility patterns resumed.
After weeks of little action, the foreign exchange market sprang back into life on Monday as sterling jumped by roughly 1 per cent against the greenback to purchase $1.3987. The euro gained 0.4 per cent to cross $1.20.
In Europe, the pan-continental Stoxx 600 index closed down 0.1 per cent, having hit a fresh intraday high in the morning. London’s FTSE 100 benchmark slid 0.3 per cent while Frankfurt’s Xetra Dax fell 0.6 per cent.
The global oil benchmark Brent crude added 0.4 per cent to $67.05 a barrel.