U.S. stocks took a nose dive Monday as investors contemplated what the speed of the Delta coronavirus variant might mean for the world economy. Bond yields sank to 1.18% as investors searched for safe havens. Oil also fell, tumbling below $70 a barrel.
The Dow closed out the day down 726.81, or a loss of 2.09%, ending the session at 33,962 while the S&P 500 lost 68 points, or 1.59%, and ended the day at 4,258. The tech heavy Nasdaq Composite Index fared slightly better, losing just 1.06% on the day, or 152 points, closing at 14,275.
The moves in the markets are similar to the patterns we witnessed in March 2020. As I noted earlier, on the plus side, investors have seen this movie before. And, as such, the smart money will be looking for opportunities in oversold sectors and companies.
But, the Fed could be running out of options for additional ways to help a struggling economy. (Story continues beneath video.)
Inflation, after all, is still a real concern. The consumer price index is already at 5.4% and still climbing. Fears of more lockdowns may cause the Biden Administration to push for more handouts while simultaneously encouraging the Federal Reserve to print more money in the interim. This, in turn, will cause prices to go up.
In this scenario, there are two issues for investors to consider: the long and short term effects of all this money.
Asset Bubble in the Making?
The M2 (the broadest measurement of money supply) is already at its highest level since WWII and ultimately, unless we have some truly miraculous financial engineering, this will have the consequence of creating asset bubbles.
Nonetheless, you know the expression – ‘don’t cut off your nose to spite your thumb?’ It’s important for investors to recognize that in the near term, we are not at risk for a massive systemic 2008-like scenario. As such, as inflation permeates the economy, it will affect all assets…including stocks.
This is a long way of saying, if you’re in this for the long haul, you’ll still want to still be invested. The smartest investors never bet against America.