Why did the Dow tumble Monday? Economic growth is now a bigger worry than inflation.

The rates marketplace has been “signaling maturation concerns for the past respective months,” said Marvin Loh, elder planetary markets strategist astatine State Street, successful a telephone interview.

The culprit getting astir of the blasted Monday was the delta variant of the coronavirus that causes COVID-19, and which is liable for increasing infections astir the world, including the U.S. and different countries that person rolled retired vaccines. Fears of renewed question restrictions and the further dispersed of the highly transmissible variant, peculiarly among the unvaccinated, enactment unit connected travel-related stocks and different industries and sectors that had antecedently been beneficiaries of bets connected cyclical companies expected to payment the astir from the economical reopening.

In the end, the Dow Jones Industrial Average DJIA, -2.09% fell 725.81 points, oregon 2.1%, to adjacent astatine 33,962.04, its biggest one-day percent and constituent driblet since Oct. 28. The S&P 500 SPX, -1.59% gave up 68.67 points, oregon 1.6%, to extremity astatine 4,258.49, portion the Nasdaq Composite COMP, -1.06% shed 152.25 points, oregon 1.1%, finishing astatine 14,274.98 — the worst time for some indexes since May 12. Meanwhile, the small-capitalization Russell 2000 scale RUT, -1.51% fell 1.5% to 2,130.68, avoiding a adjacent successful correction territory astatine oregon beneath 2,124.15, representing a driblet of astatine slightest 10% from a caller peak.

Spreading the blame

But the delta variant wasn’t solely to blame. Loh noted that prospects for further fiscal stimulus from Washington person been stalled for immoderate time. An earlier boost for the reopening commercialized had travel aft runoff Senate elections successful Georgia successful January that handed razor-thin power of the precocious enclosure to Democrats and raised prospects for transition of assertive fiscal measures pushed by President Joe Biden.

Investors were besides citing U.S.-China tensions, aft the Biden administration blamed Beijing for a hack of Microsoft Exchange email server bundle that compromised tens of thousands of computers astir the satellite earlier this year. The European Union and Britain besides pointed the digit astatine China.

But aft an archetypal triumph connected a large spending plan, efforts toward a ample infrastructure spending measure and plans for further measures person bogged down, leaving lone monetary argumentation successful focus.

And portion the Federal Reserve isn’t rushing to propulsion backmost connected enslaved buying oregon rise involvement rates, a pullback successful monetary stimulus is successful sight. And different large cardinal banks, including the European Central Bank and Bank of Canada, are besides looking toward reducing stimulus efforts, Loh said.

The delta variant, meanwhile, “makes things that overmuch much uncertain successful presumption of however happening are going to regress,” Loh said, noting that “peak maturation is thing that is being talked astir a batch more.”

Meanwhile, yields connected long-dated U.S. Treasurys and different developed marketplace bonds person tumbled. Indeed, the driblet successful the 10-year output TMUBMUSD10Y, 1.193%, which had risen to astir 1.8% successful March arsenic maturation expectations surged and ostentation fears mounted, subsequently slumped. On Monday, it traded beneath 1.20% for the archetypal clip since mid-February. Yields and indebtedness prices determination successful other directions.

Stagflation redux?

For immoderate investors, declining yields bespeak fading ostentation fears, with investors demanding little of a premium to support aboriginal coupon payments from being eroded by inflation. But others argued that the autumn successful yields and Monday’s stock-market autumn constituent to rising fears of stagflation, a word often associated with the 1970s premix of rising ostentation and unemployment.

See: Why a enslaved rally could thrust the 10-year Treasury output little still, adjacent arsenic ostentation expectations go unmoored

“The planetary system is hardly surviving connected beingness support, and different question of infections whitethorn spur lockdowns that could awesome the decease knell for the tenuous recovery,” said Peter Essele, caput of concern absorption for Commonwealth Financial Network, successful emailed remarks.

“Fear of stagflation will beryllium a large interest for investors if a resurgence successful COVID infections causes economies to dilatory portion user prices proceed an upward trajectory,” helium said. “The beardown show of inflation-linked bonds arsenic of precocious whitethorn beryllium an denotation that those fears are mounting in, with the autobus already having near the station.”

Keeping it successful perspective

But others saw the Monday selloff arsenic agelong overdue fixed a tally that saw large indexes proceed to acceptable all-time highs arsenic precocious arsenic past week.

Indeed, the information that Monday’s declines were the biggest successful months mightiness beryllium grounds much to the deficiency of marketplace volatility that has accompanied the stock-market rally. The S&P 500 hasn’t pulled backmost astatine slightest 5% from a caller precocious since precocious October, according to Dow Jones Market Data.

That is 1 of the longest stretches without specified a pullback successful the past decade, wrote analysts astatine Truist Advisory Services, successful a note. “Historically, we thin to spot 2 oregon 3 5%-plus pullbacks a year, each of which travel with antagonistic headlines,” they noted.

Indeed, a pickup successful volatility accompanied the rising worries astir COVID and caller variants has triggered a pickup successful volatility, with the Cboe Volatility Index VIX, +21.95% jumping successful caller sessions to commercialized supra 22 successful precocious Monday action, aft trading adjacent 14 astir 2 weeks ago, beneath its semipermanent mean adjacent 20.

That is helped provender weakness successful equities, said Mike Lewis, caput of U.S. equities currency trading astatine Barclays, successful emailed comments.

The volatility leap causes “systematic” traders, peculiarly trend-following commodity trading advisers, “to instrumentality profits connected caller equity gains, creating a batch of proviso into an equity marketplace with debased summertime volumes, and not a large liquidity backdrop.”