U.S. stocks are falling from their record highs Monday, as trading gets underway in a year where the dominant expectation is for a powerful economic rebound to eventually sweep the world.
The S&P 500 was 1.5% lower in midday trading, after earlier flipping from small gains to losses. The Dow Jones Industrial Average also fell from its record set last week and was down 522 points, or 1.7%, at 30,083. The Nasdaq composite was 1.4% lower, as of 11:36 a.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 a big economic recovery given COVID-19 vaccines’ slow roll out.
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. Most European and Asian stock indexes were higher, while Treasury yields climbed in a signal of rising expectations for economic growth and inflation.
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. Two runoff races in Georgia on Tuesday will determine which party controls the Senate.
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 slipped 2.4%, Microsoft fell 2.2% and Amazon lost 2.1%. 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.
Momentum has slowed for Big Tech stocks, which soared earlier in the pandemic as shop- and work-from-home trends that benefit them accelerated. Many analysts expect the stock market’s gains to broaden this year as the economy recovers, with Big Tech no longer pulling so far away from the rest of the market.
Tesla rose 4% 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 1.8%.
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 0.92% from 0.89% late Thursday. Markets were closed Friday for New Year’s Day.