Stocks rallied on Tuesday, with Wall Street recouping most of the previous session’s steep losses, as bargain-hunting momentarily counterbalanced rising COVID-19 infections.
On Monday, major benchmarks suffered their worst declines of 2021, overwhelming quarterly earnings that have almost uniformly reflected a strong rebound. The rising case count driven by the Delta variant — a more communicable form of COVID-19 — pushed the Nasdaq and S&P 500 to their biggest drop in nearly two months, and sent benchmark Treasury yields to their largest decline in over 3 months as investors sought shelter from the uncertainty. The Dow’s point drop was its worst since October 2020.
However, investors reconsidered some of that pessimism in Tuesday’s session, with some analysts pointing out that hospitalizations and deaths haven’t risen as dramatically — and are far below where they were during the worst days of the COVID-19 outbreak. Major indices jumped, with the Dow clawing back more than 1% on the day as traders snapped up bargains.
“There are some silver linings,”Clear Bridge Investment Strategy analyst Josh Jamner told Yahoo Finance Live. “So far, hospitalizations remain low. It seems like the vaccines are very effective against this. That leads us to be optimistic.”
This week’s batch of earnings will include industry leaders like Netflix (NFLX) and Johnson & Johnson (JNJ). According to data from Bank of America, second quarter earnings per share are tracking 3.5% above consensus, led by financials, with raised guidance and better-than-expected topline results also strong.
Still, the ongoing pandemic is proving increasingly difficult to control, even with a mass vaccination effort underway. Investors are fearful that soaring infection rates may trigger new round of restrictions, the likes of which brought the economy to a screeching halt last year. Already in Los Angeles, authorities have re-instituted indoor masking requirements, a precursor to what could lie ahead.
At least for one day, investors’ urge to bargain-hunt from beaten-down stocks displaced concerns about soaring case numbers.
“Whereas a 700-point drop might be a couple of days to get back, we’re seeing it within 24 hours,” Marketgauge.com partner Michele Schneider told Yahoo Finance Live. “That’s just the nature of the fact that the retail investors are so hungry and trained, well-trained, to buy every dip.”
Analysts are cautiously monitoring key sectors that may suffer the most if rising infection rates spark new restrictions.
“While most states appear unlikely to reimpose restrictions on activity, the upturn in infections still poses a downside risk to the economy over the coming months if it prompts people to voluntarily stay away from in-person services,” Capital Economics’ Paul Ashworth said in a note on Tuesday.
This comes at a time when real consumption growth already appears to be faltering, as higher prices reduce purchasing power,” he added. “The upshot is that real economic growth is slowing more sharply than we had originally anticipated, even before the potential impact of the new Delta variant.”
Against the backdrop of surging demand and prices, Corporate America continues to surprise investors to the upside with second-quarter earnings results. About 8% of S&P 500 companies have reported results so far, mostly banks. Of those reporting, 85% have topped estimates, according to FactSet data.