Jul 9, 2021 - Economy

Why stocks got rocked on Thursday

Illustration showing a declining graph with a person standing on top of the line with their hand on their forehead.

Illustration: Shoshana Gordon/Axios

Financial markets were rattled on Thursday amid signs that the economic recovery is at risk of stumbling. But experts say the longer-term outlook for markets remains bright.

Why it matters: Even with the selloff, the stock market is near an all-time high, with the S&P 500 having closed at a record 4,358 on Wednesday.

  • Largely driven by expectations for future earnings growth, the stock market is vulnerable to suggestions that growth may be peaking and potentially turning lower.
  • The spread of the Delta variant of COVID-19 is among the risks that could hinder growth.
  • Tumbling Treasury yields and the unexpected increase in initial claims for unemployment benefits didn’t help.

What they’re saying: Dave Lutz, a strategist at JonesTrading, tells Axios one of the drivers of volatility this week is the absence of traders in the market.

  • "Dealing with summer vacations makes things much more whippy than we normally would see."
  • Lutz added that many players in the market were positioned for higher yields, which may be contributing to the drop in yields as traders unwind their wrong-way bets.

The big picture: Despite hiccups like what we saw on Thursday, market experts say things still look good for stocks.

  • "Given that vaccinations are limiting case growth, which should keep the country open for business, the economic risks are likely limited," Commonwealth Financial Network CIO Brad McMillan said in a report.
  • "Also, with interest rates still low, which should support valuations, and with earnings likely to grow sharply again this quarter, any further downside is likely to be limited."

Be smart: History says it would be very normal for stocks to fall much more at this point of a bull market before recovering all of those losses and then some.

  • By no means is this a guarantee that stocks are headed much higher. But don’t be surprised if they do.
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