By William WattsThornton McEnery
U.S. stocks closed lower on Thursday, as falling bond yields reflected investor concern that a resurgence of COVID cases in some countries may slow the global economic recovery.
How did the major indexes do?
The Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA +0.06% closed down 259.86 points, or 0.8%, at 34,421.93, after dropping more than 500 points at its session low.
The S&P 500 /zigman2/quotes/210599714/realtime SPX +0.23% finished down 37.31 points, or 0.9%, at 4,320.82.
The Nasdaq Composite /zigman2/quotes/210598365/realtime COMP +0.21% fell 105.28 points, or 0.7%, to end at 14,559.78.
On Wednesday, stocks edged higher, with the S&P 500 rising 0.3% and the Nasdaq Composite eking out a gain of just over 1 point — enough to lift both indexes to record finishes. The Dow rose 104.42 points, or 0.3%, to end at 34,681.79.
What drove the market?
U.S. stock benchmarks retreated, with the weaker tone across global equities attributed, at least in part, to worries that the recovery could be slowed by persistent supply bottlenecks and the spread of the delta variant of the coronavirus that causes COVID-19.
The price action across markets reflected a “tug of war between fears of inflation and fears of growth peaking,” said Art Hogan, chief market strategist at B. Riley-National, in a phone interview. At present, fears of an inflation surge “are being replaced with the fear that this is as good as it’s going to get” for economic growth, he said.
In the end, such fears are likely to prove unfounded as bottlenecks resolve themselves and as corporate earnings reports begin to roll in next week, Hogan said.
Earlier Thursday, the U.S. Labor Department said initial jobless claims rose to 373,000 from an upwardly revised 371,000 in the seven days ended July 3. Economists had looked for claims to drop to 350,000.
A sharp drop in bond yields the yield on was attributed in part to concerns about a slowing pace of economic recovery and fading fears of persistent inflation. The 10-year U.S. Treasury yield BX:TMUBMUSD10Y was down 3.4 basis points at 1.287% after dipping below 1.25%, its lowest since February. The fall in long-dated yields has significantly flattened the yield curve, a plot of yields across Treasury maturities.
The curve flattening “has already led market participants to sell cyclical stocks in favor of large-cap growth stocks, essentially reversing the rotation into value stocks experienced since September,” said Steven Ricchiuto, chief U.S. economist at Mizuho Securities, in a note.
Analysts have scrambled to explain the Treasury rally, which has seen the 10-year yield tumble from above 1.40% at the beginning of the month, with explanations ranging from a loss of faith in the economic recovery, to global appetite for yield, to technical factors that have seen a flush out of speculative bets on rising yields.
Technology shares, however, did not benefit on Thursday as yields fell, as they often do, which may have been a reflection of the idea that the sector’s valuations had become overstretched in recent sessions, leaving them vulnerable to profit-taking amid a broad market selloff, Hogan said.
Analysts said concerns over the delta variant of the coronavirus weighed on sentiment. Japan on Thursday placed Tokyo under a state of emergency that may continue through the Olympic Games.