Stocks drop on fears COVID variants threaten economy's recovery

From Wall Street to Sydney, stocks tumbled Monday amid worries that rising COVID-19 infections mean the pandemic is worsening in hotspots around the world.

The Dow fell 725 points, or almost 2.1%, to 33,962, the worst day in 2021 for the blue-chip stock benchmark. The S&P 500-stock index fell 2.1%, after setting a record just a week earlier. The tech-heavy Nasdaq composite was 1.4% lower.

In another sign of worry, the yield on the 10-year Treasury dropped Monday to its lowest level in five months. It touched 1.21% as investors scrambled for safer places to put their money.

Airlines and stocks of other companies that would get hurt the most by potential renewed COVID-19 restrictions took some of the heaviest losses, similar to the early days of the pandemic in February and March 2020. United Airlines lost 6.2%, mall owner Simon Property Group dropped 6% and cruise operator Carnival fell 5.6%.

The drop also circled the world, with several European markets sinking roughly 2.5% and Asian indexes down a bit less. The price of benchmark U.S. crude, meanwhile, sank more than 7% after OPEC and allied nations agreed on Sunday to eventually allow for higher oil production this year.

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.

"The more transmissible delta variant is delaying the recovery for the {Asia's] economies and pushing them further into the doldrums," said Venkateswaran Lavanya, at Mizuho Bank in Singapore.

Even though vaccination rates are higher in the United States and some other developed economies, the tightly connected global economy means hits anywhere can quickly affect others on the other side of the world.

In Japan, the world's third-largest economy, the vaccine rollout came later than in other developed nations and has stagnated lately. Japan is totally dependent so far on imported vaccines, and just one in five Japanese have been fully vaccinated.

Concerns rising

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.

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 from a perch of roughly 1.75% in March. It was at 1.22% 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 often 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. The Russell 2000 index of smaller stocks slumped 1.5% Monday.

Investors' attention now turn to the earnings of U.S. companies. Most companies will report their results this week and in following weeks. Hopes are high, with profits in the S&P 500 expected to jump 64% from a year earlier, according to FactSet.