Wall Street stock markets clawed back losses after a global rout a day earlier as investors dialled down caution over the spread of the Delta coronavirus variant to focus instead on economic growth.
The S&P 500 index was on track to erase Monday’s losses, climbing 1.7 per cent by the New York afternoon, having fallen by roughly the same margin to start the week, which was the benchmark’s biggest daily drop in two months. The tech-focused Nasdaq Composite also rose 1.7 per cent while Europe’s continent-wide Stoxx 600 index closed 0.5 per cent higher.
Monday’s pullback in global stocks snapped a long period of tranquillity in which equities have drifted higher, spurred by Covid-19 vaccines, central banks’ monetary stimulus and multitrillion-dollar spending plans signed off by US president Joe Biden.
The sell-off came after the highly transmissible Delta strain led to renewed social restrictions in Asia-Pacific countries that had appeared to have had the virus under control alongside increased anxiety about slowing vaccination rates in the US.
But with US gross domestic product expected to grow at an annualised rate of 9 per cent in the second quarter, many investors remain optimistic about companies’ prospects. Sectors set to benefit from a rebound in economic activity, such as banks and industrial stocks, led Wall Street higher on Tuesday.
“The underlying factors that were driving markets in the first half of the year are still there,” said Marija Veitmane, senior multi-asset strategist at State Street Global Markets. “Economic recovery, better earnings, super-accommodative monetary policy and a lot of money on the sidelines from savings and cheap borrowing. It is all still there.”
But Ross Mayfield, investment strategist at RW Baird, said equity markets were likely to remain sensitive to bad news about infection rates and the progress of vaccination drives.
“Markets had been pricing in something close to perfection,” he added. “Investors are now working through the idea that the pandemic is something we are going to learn to live with, and that it will prevent the reopening from being the grand party we all hoped for.”
Outside stock markets, caution lingered. The yield on the benchmark 10-year Treasury bond was steady at 1.21 per cent on Tuesday, having hit its lowest level since February in the previous session. Shorter-dated Treasury yields fell, indicating investors have pushed back expectations for central bank interest rate increases.
The dollar index, which measures the greenback against leading currencies and tends to strengthen during periods of market stress, added 0.1 per cent.
Sterling, which was driven 0.7 per cent lower against the dollar on Monday as Delta variant case rates surged in the UK, dropped a further 0.4 per cent to $1.3624, its weakest point since early February.
Brent crude rose 1.3 per cent to $69.53 a barrel after shedding almost 7 per cent on Monday as pandemic-related jitters were compounded by producer group Opec+ agreeing to raise output by 400,000 barrels a day from August.