The Delta Variant Is Tanking the Market – What Moves Should You Make?

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The COVID-19 Delta variant has given investors a bad case of the jitters, with stock markets tumbling worldwide on Monday, including a drop of 2.1% on the Dow and 1.6% on the S&P 500 – its biggest one-day decline since May.

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Several European markets also fell sharply Monday amid concerns about the impact the latest variant will have on countries that still have low vaccination rates, NPR reported.

If this all sounds familiar, you’re not imagining it. The coronavirus is once again forcing investors to reconsider their strategies in an uncertain environment that could worsen quickly if certain economic sectors are forced to shut down again. That’s what happened during the early stages of the pandemic.

But some economists and analysts warn against reading too much into the Delta variant.

As The New York Times reported, Goldman Sachs analysts last week told clients that the potential economic impact of the Delta variant of the coronavirus would be “modest.”  

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Meghan Shue, head of investment strategy at Wilmington Trust, told CNBC on Monday that the Delta variant is “much more of a concerning story outside of the U.S., particularly when you think about emerging markets and some areas of even the developed market complex that just don’t have the supply and the rate of vaccine penetration that we have here in the U.S.”

She added that in her view, policymakers “are going to be focusing more on the vaccines than shutdowns.”

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Most financial experts advise investors to be conservative in the coming weeks to see how the new variant plays out. Don’t panic, they say, but don’t be overly aggressive, either. This might mean shying away from buying too many stocks and instead putting your money into bonds.

As Mohamed El-Erian, Allianz chief economic advisor, told CNBC: “You can sell stocks and buy bonds and immunize your liabilities.”

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There is also a general feeling that the Delta variant is only one piece of a larger trend that could weigh down the economy over the near term. Other headwinds mentioned by Michael Yoshikami, CEO of Destination Wealth Management, are potential tax increases, excess market enthusiasm, and unreasonable expectations that the U.S. economy will be wide open again in the very near future.

“I think the Delta variant as well as these other issues are going to cause some problems for the market,” Yoshikami told CNBC. “That’s why we’ve been concerned and why we’ve been expecting a 10% correction.”

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Keith Lerner, the chief markets strategist at Truist Advisory Services, has a slightly more upbeat take. In a note to clients Monday, reported by Yahoo Finance, Lerner said that “while the Delta variant complicates the near-term picture, and is likely to lead to a continuation of sloppy trading through the seasonally weak summer months, our base case remains that the primary trend over the next 12 months remains higher.”

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He added that the Delta variant “likely delays and complicates some U.S. reopening activities on the margin, which minimally shaves down economic growth in the third quarter, though we expect growth to remain within our range of 6.2% to 7.3% year-over-year for 2021.”

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