After hitting record highs in previous days, markets tumbled Monday, sending the Dow 700+ points lower.
I received calls from investors, some of which were looking to buy the dip, deploying cash they had sitting on the sidelines. Others thought this was the start of a big correction and wanted to reallocate their investments into something more conservative.
Why the drop? Mostly fears of a COVID-19 resurgence caused by the Delta variant that could derail the economic recovery.
Case numbers are rising globally, even in countries with high vaccination rates, and the surge could lead to a return to travel restrictions and business closures. Could these market jitters cause a 10%+ correction? It’s possible.
Should you panic and freak out? Definitely not. Here are a couple of reasons why:
- Summer months can bring higher volatility, perhaps because of lower trading volume, making bad news shake the market harder.
- We’ve had a pretty long winning streak, which includes not just upwards momentum in the markets, but with very little volatility. Corrections are part and parcel of a healthy market, especially when we’re near all-time highs.
- New variants and higher case counts are a threat. However, vaccination rates are continuing to rise and experts don’t think that we’ll see the devastating health outcomes we saw last year.
Could the Delta variant cause the economy to slow down? It’s hard to say at this point. The rosy projections about the economy have been based on a swift return to normal from the shortest recession in history.
If surging case counts cause a resumption of business and travel limits, we could definitely see a hit, especially in recovery-dependent industries like airlines, cruises, hotels and other “reopening stocks.”
Supply chain issues are still causing materials shortages, creating delivery delays of goods and potentially triggering slowdowns in industries such as building and construction.
However, consumer spending is still very strong and the economy is in way better shape than it was last year.
Bottom line: We could see some economic complications due to the Delta variant and we’re likely to see more market volatility ahead, especially if economic data disappoints.