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Nation & World

The Spread Of The Delta Variant Is Shaking Confidence And Sinking Stocks

AILSA CHANG, HOST:

There was a major sell-off on Wall Street today. The Dow dropped 725 points, more than 2%. That is the biggest loss of the year so far. The S&P and NASDAQ also fell. NPR's David Gura joins us now with more.

Hey, David.

DAVID GURA, BYLINE: Hey, Ailsa.

CHANG: So why are the markets falling?

GURA: Well, it has to do with the pandemic and this new variant of COVID-19, the delta variant. We've seen it spiking in other countries, including Indonesia. And it could start happening here in the United States, where there is still a significant part of the population that's unvaccinated. Now, the reason this is so important to markets is it threatens the economic recovery that's underway. You know, there had been this sense we've moved past this. People have been traveling. They've been going to restaurants and concerts. And now it's starting to feel like we're moving backwards, so this new variant is making investors nervous. It's also having a knock-on effect. When you look at what stocks were hardest hit today, it's airlines and cruise lines and hotels. And if this continues to be a drag, we could see it play out in corporate profits. Companies have just started sharing information with investors about earnings. It also, Ailsa, could derail the record-setting run that markets have been on for months now.

CHANG: Right. And, of course, all of this is coming as investors are already worried about inflation, right? And higher prices could start hurting the economy.

GURA: Yeah. I mean, this has moved well beyond an academic exercise. People are genuinely concerned about rising prices. The Consumer Price Index surged 5.4% in June. That's the most in 13 years. And we're seeing anxiety about rising prices in surveys about the U.S. economy of people who are paying more for all kinds of things, from cars to houses to electronics. Now, the chairman of the Fed Reserve and the Treasury secretary - they both say these price increases are transitory. The big question is, how long are they going to last? And when it comes to the markets, most strategists will tell you not to overreact when you have a sell-off, the likes of which we had today. Savita Subramanian is one of them. She's with Bank of America. And she says we've gotten used to all these records, but we should expect some volatility.

SAVITA SUBRAMANIAN: That's not something to write home about. It's actually kind of a normal market environment.

GURA: You know, she says one of the major indexes, the S&P 500, has a 5% pullback on average, Ailsa, about three times a year.

CHANG: OK, that's sort of reassuring. But how does all of this square with the overall health of the economy right now?

GURA: Well, we've seen strong economic growth for a while now, which is one reason why markets have gained so much. Another is optimism about the economy reopening, but there seems to be increasing concern about how long that will last, and we've seen a lot of these concerns in the government bond market. That has now started to spill over into the stock market.

CHANG: OK, so what is the outlook going forward at this point?

GURA: Well, next Thursday, we'll get a new estimate of GDP, gross domestic product. That's a report card of how the U.S. economy has done over the last three months. And it's also going to give us a sense of the pace of the recovery. I talked with market strategist Michael Purves. He's the CEO of Tallbacken Capital. And he says that on the road to an economic recovery, there are going to be bumps in the road.

MICHAEL PURVES: I think common sense will tell you that there are going to be issues coming along, and a lot of that will probably weigh on some part of the recovery story.

GURA: But for the time being, the focus is once again almost squarely on the virus itself, on COVID-19 and on how bad cases will get, which is why we're seeing the Biden administration focusing more attention still, Ailsa, on convincing unvaccinated Americans to get their shots.

CHANG: That is NPR's David Gura.

Thank you, David.

GURA: Thank you.

(SOUNDBITE OF BLOCKHEAD'S "FAREWELL SPACEMAN") Transcript provided by NPR, Copyright NPR.