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What Spooked Wall Street?



The market plunged Monday as concerns about the Delta variant grew and investors funneled money into safer bonds. The yield on the 10-year fell to 1.18% from 1.30% on Friday, reaching its lowest level since February. Falling yields were fueled by worries about a re-emergence of the virus and caused similar movements to those of last spring, when investors dumped companies who could be impacted by lockdowns and bought safe government bonds and tech companies that stand to benefit. 

The losses were broad, with the Dow Jones falling more than 2% while the S&P 500 losing 1.5% and the Nasdaq declining by just over 1%. This marked the worst single day loss for the Dow since October. European stocks were hit hard as well, with the Stoxx 600 down 2.3% as investors worried about growing case numbers in the UK. Meanwhile, government bonds in Germany and the UK reached five-month lows. 

Airlines and cruises were among the worst performers, reflecting renewed fears of further restrictions on movement.  American Airlines and United Airlines fell more than 4%, continuing their 2 month slide as both are set to report earnings this week. An agreement to raise oil production from the Organization of Petroleum Exporting Countries (OPEC) and worries that the Delta variant will reduce movement and cause fuel demand to dry up contributed to crude futures falling 7.5%, sending the commodity into correction territory.

Inflation concerns continue to plague the market, as the consumer price index rose at the fastest pace in 13 years. Evidence is emerging that higher prices are beginning to dent consumer confidence. If the economic outlook worsens while inflation persists, a phenomenon known as stagflation, fiscal and monetary authorities will be limited in how much stimulus they can use.  Despite yesterday’s drop, the S&P remains up over 12% for the year, and economic growth is expected to stay strong through the second quarter of 2022. Investors may have gotten ahead of themselves as they sent assets from across the board to record highs, putting the market in a situation where anything but a best case scenario warrants a pullback.

Asset in the spotlight

Volatility indicators for STERIS reached a recent low. Historically, this led to a median increase in STERIS price of 12% over the following 6 months, as shown in the chart. TOGGLE analyzed 24 similar occasions in the past to produce the median expectation and the confidence band. This insight received 7 out of 8 stars in our quality assessment.

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