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Dow drops 260 points as investors grow concerned about delta variant's impact on economic recovery

CNBC logo CNBC 9/6/2021 Maggie Fitzgerald
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The Dow Jones Industrial Average fell on Tuesday amid lingering concerns about the delta variant's impact on the economic reopening.

The Dow dropped 269.09 points to 35,100.00, dragged down by a 1.8% loss in Boeing's stock. The S&P 500 fell 0.3% to 4,520.03. The Nasdaq Composite rose less than 0.1% to 15,374.33, notching a record close. The NYSE was closed on Monday for Labor Day.

Goldman Sachs downgraded its economic outlook over the weekend, citing the delta variant and fading fiscal stimulus. Goldman now sees 5.7% annual growth in 2021, below the 6.2% consensus. The firm cut its fourth-quarter GDP outlook to 5.5%, down from 6.5%.

"The hurdle for strong consumption growth going forward appears much higher: the delta variant is already weighing on Q3 growth, and fading fiscal stimulus and a slower service sector recovery will both be headwinds in the medium term," stated the Goldman note.

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Morgan Stanley downgraded U.S. equities to underweight on Tuesday.

"We see a bumpy September-October as the final stages of a mid-cycle transition play out," wrote the strategists led by Andrew Sheets. "We continue to think this is a 'normal' cycle, just hotter and faster, and our cycle model remains in 'expansion'. But the next two months carry an outsized risk to growth, policy and the legislative agenda."

Boeing shares were lower after the Wall Street Journal reported deliveries for the 787 Dreamliner would likely be further delayed. PPG Industries, a paint maker, warned that sales may fall short this quarter because of logistics issues and higher commodity costs. Shares of PPG Industries ticked nearly 3.4% lower.

Drug stocks including Johnson & Johnson, Merck and Amgen all closed lower after Morgan Stanley downgraded the three stocks.

The S&P 500 is down 0.06% for the month of September, a month that historically has challenged markets. The month averages a 0.6% decline, the worst of any month, with a positive rate of just 45%, according to CFRA.

In regular trading Friday, the Dow and S&P 500 fell after the August jobs report came in short of expectations, highlighting continued concern about the spread of Covid and its delta variant. Nonfarm payrolls increased by 235,000 in August, the Labor Department reported, but economists surveyed by Dow Jones expected 720,000 jobs.

Year-to-date, the Dow is up about 14.7%. Meanwhile, the S&P has gained 20.3% and the Nasdaq Composite rose 19.3%. Investors and analysts are still on the lookout for a major correction in September.

"Admittedly, passive investors have yet to feel pain," Bank of America said in a note Friday, adding that "2021 represents yet another year during which the [S&P 500] has crushed it, but some signs indicate that it may be time to start getting 'pickier' when it comes to stocks."

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