March 6, 2021

Stocks and Bonds: World Markets Staggered by Weak Consumer Data

The broader United States stock market dropped 2.6 percent, erasing all of its gains for the year. That capped a string of declines over seven consecutive days, its longest losing streak since October 2008.

Fears of a sovereign default in either Italy or Spain re-emerged, and the interest rates on those countries’ bonds soared. United States Treasury yields fell sharply to their lowest level in nearly a year as investors fled to the safety of American assets but also fretted over sclerotic economic growth. Gold, seen as another safe haven, leapt to a record high.

European markets initiated the descent and the United States soon followed, despite Senate approval of an agreement to lift the debt ceiling and cut more than $2 trillion from federal spending.

The markets and the breaking of the budget impasse have been overwhelmed by bad economic news and the chances of more. On Tuesday, a report showed consumers cut spending the most in nearly two years. Attention turned to Friday’s report on unemployment.

Market analysts and economists made clear that even though the debt limit agreement averted a potential default on United States debt, the drawn-out process had taken its toll.

“As the macro data comes out, it seems like we may have more on our hands than just getting the debt ceiling raised,” said Myles Zyblock, chief institutional strategist and managing director of capital markets research at RBC Capital Markets.

“We get no default, but the bad news is there is a growth trade-off,” he said. “They had to agree on fiscal contraction that would weigh on growth.”

Stanley Nabi, the chief strategist for Silvercrest Asset Management Group, said he was starting to hear the word “recession” in questions from clients over the last few days.

Recent economic data is already weak, he said, noting the G.D.P. revisions on Friday that indicated the recession was deeper and the recovery more fragile than originally thought. On Tuesday, the Commerce Department said personal spending fell 0.2 percent in June, the first time it has declined since September 2009. And now that the debt ceiling deal has offered up the prospect of lower spending from the government, Mr. Nabi said, “Who is going to drive the economy?”

“You can’t rely on capital spending,” he said. “Trade is not strong enough to make that much of a difference. As far as the economy is concerned, what the data is showing is the economy has no momentum.”

Lawrence Creatura, portfolio manager at Federated Investors, said, “The challenges that we are facing economically are that the hits just keep coming. We do have somewhat of a resolution to our budgetary impasse, but that does not overwhelm the fact that, economically speaking, that the data continues to deteriorate.”

The Standard Poor’s 500-stock index was down 32.89, or 2.56 percent, at 1,254.05, erasing all of the gains it had made this year. The Dow Jones industrial plummeted 265.87 points, or 2.19 percent, to 11,866.62, with a big dropoff toward the end of trading. And the Nasdaq index fell 75.37 points, or 2.75 percent, 2,669.24.

As the markets spiraled, analysts sifted through indexes, graphs and numbers, trying to balance risk and opportunity.

Stephen Wood, the chief markets strategist for Russell Investments, noted that the so-called fear index, or Vix, was “bouncing around a lot.” It was down at 24.67, below its high for the year, but also up from the last few weeks when it had hit the teens, even as low as 14.62 at the end of April.

“This is a risk-on, risk-off market,” Mr. Wood said. “You see waves of risk acceptance, then risk aversion.

“My take on it is volatility will be your constant travel companion,” he said, listing the recent euro zone problems, the latest debt ceiling debates, talk of a United States credit downgrade and the potential for an economic slowdown ahead.

“A lot of these variables need to be priced in,” he said.

Graham Bowley contributed reporting.

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