By Yasin Ebrahim
Investing.com – The S&P 500 moved off session lows Thursday, as yields cut some losses but sentiment remained fragile amid concerns about the outlook on the global recovery at a time when the delta variant has caused a spike in infections.
The S&P 500 fell 0.7%, but had been down more than 1%. The Dow Jones Industrial Average slipped 0.7%, or 245 points, and the Nasdaq was down 0.6%.
The 10-year U.S. bond yield, which trades inversely to prices, recovered from a slump to its lowest level since February.
The recent move lower in rates comes as expectations for reflation and growth ease, forcing investors to abandon their bearish bets on the bonds.
But some on Wall Street are not buying the "peak growth" jitters and argue that there is runway for both the recovery and risk assets.
"We do not think the markets are worried about economic and earnings growth slowing from these robust levels, at least this point," Wells Fargo (NYSE:WFC). "We favor economically sensitive sectors like energy, industrials, materials and financials."
Beyond impact of slowing growth, a decline in the supply of bonds issued by the Treasury is also playing a role in boosting bond prices, sending yields lower.
The Treasury holds $733 billion in cash as of July 6, and is "way behind in making progress toward bringing their cash balances down to the $450 billion target for July 31 prescribed by the debt ceiling legislation," Jefferies (NYSE:JEF) said. "These paydowns will help the process along, but we still expect further cuts."
The outlook on growth has also been soured by a spike in Covid-19 cases as the delta variant continues to spread, threatening the summer of travel, particularly in Europe.
The labor market, meanwhile, continues to suggest a longer road to recovery as initial jobless claims unexpectedly rose by 2,000 to 371,000 last week.
As the enhanced unemployment benefits come to end, Morgan Stanley (NYSE:MS) is backing a wave of supply to the hit the labor market that will help plug the current gap.
"We continue to expect a bump in labor supply late summer as the remainder of the federal supplementary benefit programs are approaching expiration," Morgan Stanley said in a note.
The sea of red for rates usually translates into gains for tech, but growth sectors of the market also succumbed to selling pressure.
Facebook (NASDAQ:FB), Google-parent Alphabet (NASDAQ:GOOGL), Microsoft (NASDAQ:MSFT, and Apple (NASDAQ:AAPL) were below the flatline. Amazon.com (NASDAQ:AMZN), however, bucked the trend to trade higher.
In other news, cryptocurrency sensitive stocks were hurt by a plunge in bitcoin as risk-off sentiment spilled into cryptos.
Coinbase Global (NASDAQ:COIN), MicroStrategy (NASDAQ:MSTR), Square (NYSE:SQ) were down.