Before The Bell - The stock market started poorly yesterday, as fears increased about the rising spread of the Delta variant of the coronavirus. Traders thought this would slow the economy's growth and lead to the resumption of restrictions that state governments previously enacted. The Dow Jones Industrial Average found itself lower by around 800 points in short order, while the other major indices followed lower. However, after an initial large early decline, the indices trended only slightly lower throughout the day. By the end of the session, the Dow Jones Industrial was off 726 points, the S&P 500 was down 69 points, and the NASDAQ was down 152 points.
Moreover, market breadth was quite negative, as decliners outpaced advancers by a 5.6-to-1.0 ratio. Though all sectors of the stock market were lower yesterday, consumer staples performed the best on a relative basis. This group tends to outperform in a slower-growth environment. Meantime, energy issues were among the worst performers, hurt by a reduction in the related commodities.
In commodity news, oil prices fell, as traders think that an economic slowdown will occur, and this will cause less energy to be used. An agreement between OPEC+ members to increase supply also put pressure on crude prices both here and abroad. U.S. Treasury bond yields were lower across the board, as traders moved into the safe-haven asset. The VIX Volatility Index was higher as demand for options protection increased.
In the after-hours market, futures prices improved, gaining back a portion of the day's losses. This positive movement trended slowly higher throughout the evening. By morning, the futures were well into the green, suggesting a strong start to the trading day.
Looking ahead, traders will likely keep an eye on a few economic data releases today. At first blush, the residential construction data were solid, as privately‐owned housing starts in June were at a seasonally adjusted annual rate of 1,643,000, which was 6.3% percent above the revised May estimate of 1,546,000 and is 29.1% above the June 2020 rate of 1,273,000. Later in the week, other economic reports, including weekly jobless claims and existing home sales, will provide further clues on how the U.S. economy is doing. Meantime, earnings season continues in full, as several large companies are slated to report quarterly results both before and after market hours. A disproportionate number of these companies are financials, which, along with last week’s results from the big banks, should show how well lending activity has held up during the second quarter. All told, we think traders will look toward the earnings reports, while keeping an eye on any developments concerning the coronavirus pandemic and the Delta variant strain. - John E. Seibert III