Stocks fall as trading starts for year of great expectations

U.S. stocks are falling Monday, as big swings return to Wall Street at the onset of a year where the dominant expectation is for a powerful economic rebound to sweep the world

NEW YORK — U.S. stocks are falling Monday, as big swings return to Wall Street at the onset of a year where the dominant expectation is for a powerful economic rebound to sweep the world.

The S&P 500 was 1.7% lower in afternoon trading after earlier dropping as much as 2.5%. The Dow Jones Industrial Average also fell from its record set last week and was down 512 points, or 1.7%, at 30,094. The Nasdaq composite was 1.7% lower, as of 1:39 p.m. Eastern time.

Coronavirus cases keep climbing at frightening rates around the world, threatening to bring more lockdown orders that would punish the economy. The worsening numbers also raise the possibility that Wall Street has been overly optimistic about the big economic recovery it sees coming because of COVID-19 vaccines. Tuesday’s upcoming runoff elections to determine which party controls the Senate may also be contributing to the volatility.

Elsewhere in the world, stocks fell in Japan as officials there mull a state of emergency due to surging virus cases. But optimism was more prevalent in other markets, with most European and Asian stock indexes higher. Treasury yields were holding relatively steady after giving up a healthy gain in the morning.

The United Kingdom has been hit particularly hard by a new variant of the coronavirus that appears to be more contagious. On Monday, the United Kingdom became the first nation to start using the COVID-19 vaccine developed by Oxford University and drugmaker AstraZeneca.

In the United States, regulators have already approved two other vaccines. China last week gave the greenlight for its first domestically developed vaccine. Others are also being tested.

The hope in markets had been that vaccines will allow daily life around the world to slowly return to normal. That’s helped spark a recent recovery for stocks of travel-related businesses, smaller companies and other industries left behind for much of the pandemic.

Even though infection rates and hospitalizations are at frightening levels, many investors have been betting that ultralow interest rates provided by the Federal Reserve and financial support for the economy recently approved by Congress can help tide the economy over until vaccinations become more widespread.

Governments might throw less stimulus at their economies than last year, but policy is “still at a very loose setting,” which supports stock prices and lending, said Kerry Craig of JP Morgan Asset Management in a report.

“Investors should look through the bumpier start to the new economic cycle and focus on the improved earnings outlook,” Craig said.

Of course, many risks remain for the market, even beyond the threat of economic lockdowns coming in the near term because of the raging pandemic. Prices have climbed enough that critics say stocks may be too expensive, particularly if the big rebound in corporate profits that investors expect to occur later this year doesn’t materialize.

Politics is also still a wild card. If Democrats sweep the two runoff races in Georgia, that could lead to higher corporate tax rates, tighter regulations and other changes from Washington that would hinder corporate profits. Democrats already control the House, and President-elect Joe Biden is a Democrat.

But even in a Democratic sweep, markets see some causes for upside, including the potential for more stimulus for the economy. Democrats have been lobbying for $2,000 payments to go to most individuals, for example.

More than 80% of stocks in the S&P 500 were falling Monday. On the losing end of the market were several Big Tech stocks. Apple fell 2.8%, Microsoft dropped 2.7% and Amazon lost 2.2%. Because they’re so massive in size, the movements of Big Tech stocks have much more sway over the S&P 500 than other companies. Those three were the biggest drags on the index.

Airlines, cruise operators, hotel chains and stocks of other companies hit particularly hard by the pandemic also had some of the market’s sharpest losses.

Tesla rose 4.2% for one of the biggest gains in the S&P 500 after it said it delivered 499,500 vehicles last year. That’s a 36% jump on the year, though it fell short of CEO Elon Musk’s goal of 500,000, which was set before the pandemic hit.

In European stock markets, France’s CAC 40 gained 0.7%, and Germany’s DAX returned 0.1%. The FTSE 100 in London rose 1.7%.

In Asia, Tokyo’s Nikkei 225 lost 0.7% after Prime Minister Yoshihide Suga said a state of emergency was under consideration for the Japanese capital and three surrounding prefectures due to surging virus caseloads.

Suga called on restaurants and bars to close by 8 p.m. and said it would be difficult to restart a travel promotion program that was suspended last month. He said the government would expedite approval of coronavirus vaccines and begin providing injections in February.

South Korea’s Kospi rose 2.5%, Hong Kong’s Hang Seng gained 0.9% and stocks in Shanghai climbed 0.9%.

In the bond market, the yield on the 10-year Treasury rose to 0.91% from 0.89% late Thursday. Earlier in the morning, it had climbed as high as 0.96% in a signal of rising expectations of economic growth and inflation. Markets were closed Friday for New Year’s Day.

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AP Business Writer Joe McDonald contributed.