The Delta variant is the number one financial story in the world as fears of the contagion are sending markets south. At the midway point of the Wall Street session, the DJIA DOW (-875), S&P 500 SPX (-85), and NASDAQ (-199) are all deep into the red. The CBOE’s Volatility Index (VIX) is up dramatically, now trading nearly 23.0. While this value is still relatively low, the VIX is challenging levels last seen in early May.

At press time, the Delta variant is being credited with driving today’s downturn. Here’s where the situation with Delta currently stands:

• In Los Angeles, new COVID-19 cases have spiked 300% since July 4.
• According to Dr. Scott Gottlieb: “for most people who get this Delta variant, it’s going to be the most serious virus that they get in their lifetime.”
• 48 states are now seeing the new case numbers surge at least 10% week-over-week.

Traders are taking the Delta variant news extremely seriously. The bearish movement in commodities illustrates that many expect another set of global economic lockdowns. The exceedingly bullish WTI crude oil market is off more than 6.5% (-$4.80) on the day. This is a major move for oil and signals that institutional capital is preparing for another round of COVID-19 mania.

Delta Variant Shakes Market Sentiment, DOW Plunges

While today’s Delta variant sell-off is significant, the DOW remains in long-term bullish territory. However, a correction may be imminent. Remember, a “market correction” is typically measured as 10% from a periodic high. For the DOW, 10% off of the recent test of 35,000 is a pullback of 3,500. So, the magic correction level is 31,500. As of this writing, the DJIA is trading in the neighborhood of 33,800.

Overview: If we see the markets return to a March 2020 stance, things could get very messy. Interest rates are already at 0% and unlimited QE remains in place. About the only thing the Fed can do to fight a Delta variant panic is to boost asset purchases from $120 billion per month and consider a negative deposit rate. Ultimately, the Federal government would likely step in and flood the economy with stimulus dollars. 

It’s still early for Delta and we’re not at economic crisis levels yet. But, today’s selling suggests that another COVID-19 market panic is certainly possible.