Investors dump stocks, buy bonds as virus fears flare again

NEW YORK — Resurgent pandemic worries are knocking stocks lower from Wall Street to Sydney on Monday, fueled by fears that faster-spreading variants of the virus may upend the economy’s strong recovery.

The S&P 500 was 1.5% lower in midday trading, after setting a record just a week earlier. In another sign of worry, the yield on the 10-year Treasury tumbled to its lowest level in five months as investors scrambled for safer places to put their money.

The Dow Jones Industrial Average was down 749 points, or 2.2%, at 33,938, as of 11:35 a.m. Eastern time. The Nasdaq composite was 0.9% lower.

Airlines and stocks of other companies that would get hurt the most by potential COVID-19 restrictions were taking some of the heaviest losses, similar to the early days of the pandemic in February and March 2020. Mall owner Simon Property Group tumbled 4.9%, and cruise operator Carnival lost 4.3%.

The drop also circled the world, with several European markets sinking nearly 3% and Asian indexes down a bit less. The price of benchmark U.S. crude, meanwhile, sank more than 6% after OPEC and allied nations agreed on Sunday to eventually allow for higher oil production this year.

Increased worries about the virus may seem strange to people in parts of the world where masks are coming off, or already have, thanks to COVID-19 vaccinations. But the World Health Organization says cases and deaths are climbing globally after a period of decline, spurred by more infectious variant of the virus. And given how tightly connected the global economy is, a hit anywhere anywhere can quickly affect others on the other side of the world.

Experts are saying Indonesia has become a new epicenter for the pandemic as outbreaks worsen across Southeast Asia. Meanwhile, some athletes have tested positive for COVID at Tokyo’s Olympic Village, with the Games due to open Friday.

In Japan, the world’s third-largest economy, the vaccine rollout came later than in other developed nations and has stagnated lately. In Australia, the two largest cities of Sydney and Melbourne remain under lockdown to contain an outbreak caused by the more contagious delta variant.

Even in the United States, where the vaccination rate is higher, people in Los Angeles County once again must wear masks indoors regardless of whether they’re vaccinated. The rule went into effect late Saturday in hopes of reversing the latest spike in coronavirus cases, hospitalizations and deaths, mostly among unvaccinated people.

Financial markets have been showing signs of increased concerns for a while, but the U.S. stock market had remained largely resilient. The S&P 500 has had just two down weeks in the last eight, and the last time it had even a 5% pullback from a record high was in October.

The bond market has been louder in its warnings, though. The yield on the 10-year Treasury tends to move with expectations for economic growth and for inflation, and it has been sinking since March, when it was at 1.75%. It was at 1.20% Monday morning, down from 1.29% late Friday.

Analysts and professional investors say a long list of reasons is potentially behind the sharp moves in the bond market, which is seen as more rational and sober than the stock market. But at the heart is the risk the economy may be set to slow sharply from its current, extremely high growth.

Besides the new variants of the coronavirus, other risks to the economy include fading pandemic relief efforts from the U.S. government and a Federal Reserve that looks set to begin paring back its assistance for markets later this year.

Worries about a possible sharp slowdown have particularly hurt stocks whose profits are most closely tied to the strength of the economy. Stocks of smaller companies, for example, have been scuffling since hitting a peak in March even though many reports show the economy is still growing at a very healthy rate.

The Russell 2000 index of smaller stocks slumped another 0.9% Monday.

The selling pressure was widespread, with nearly 90% of the stocks in the S&P 500 lower. Even Big Tech stocks were falling, with Apple down 1.9% and Mircrosoft 1.3% lower. During earlier hiccups for the stock market, investors would often bid up such stocks further on expectations they will continue to grow almost regardless of the economy’s strength.

The losses came despite several companies reporting even stronger profit growth for April through June than analysts expected. Tractor Supply said both its profit and revenue topped Wall Street’s expectations, but its stock nevertheless sank 7.2%.

Across the S&P 500, analysts are forecasting profit growth of nearly 70% for the second quarter from a year earlier. That would be the strongest growth since 2009, when the economy was climbing out of the Great Recesssion. But just like worries are rising that the economy’s growth has already peaked, analysts are trying to handicap by how much growth rates will slow in upcoming quarters and years for corporate profits.

In Europe, Germany’s DAX lost 2.8%, and France’s CAC 40 fell 2.7%. The FTSE 100 in London slumped 2.4%.

In Asia, Japan’s Nikkei 225 lost 1.3%, Hong Kong’s Hang Seng fell 1.8%, South Korea’s Kospi dropped 1%. Australian stocks sank 0.9%.

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AP Business Writer Yuri Kageyama contributed.