By Geoffrey Smith
Investing.com -- U.S. stock markets started the new week as they ended the old one - with sharp declines, driven by concerns about a return of the Covid-19 virus as the northern hemisphere moves toward winter, and by concerns that a number of tech stocks may not be worth the astronomical valuations they've enjoyed during the summer.
Reports of chronically lax compliance with anti-money-laundering rules by banks, and the resignation of Nikola chairman Trevor Milton under allegations of fraud, further soured the mood, while the market waited for a speech by Federal Reserve Chairman Jerome Powell. Powell's colleague, Dallas Fed President Robert Kaplan, had already cast a pall over the market by saying that U.S. stock valuations were already high, measured relative to gross domestic product, and that a correction could be "healthy".
By 9:35 AM ET (1335 GMT), the Dow Jones Industrial Average was down 550 points or 2.0% at 27,107 points, while the S&P 500 was down 1.7% and the Nasdaq Composite was down 1.6%.
Nikola (NASDAQ:NKLA) stock was the most prominent name in the red, falling 21% to a four-month lower after Milton's resignation. General Motors (NYSE:GM), which had invested $2 billion in an 11% stake in Nikola only two weeks ago, fell 4.5%.
Illumina (NASDAQ:ILMN) stock was also down over 5% after the maker of gene sequencing equipment said it will pay $7.1 billion in cash and stock for the shares in Grail that it doesn't already own. Grail is developing a blood test that diagnosis cancer, but doesn't yet have any revenue.
Oracle (NYSE:ORCL) stock was up 1.7% amid conflicting reports about the progress toward resolving TikTok's status in the U.S., while Tesla (NASDAQ:TSLA) stock rose 1.1% after an internal email from CEO Elon Musk said - as he usually does toward the end of a quarter - that the company could break records for deliveries and sales if employees pull together. Tesla is due to hold an event showcasing advances in battery design on Tuesday.
Tech stocks more broadly were, however, outperforming, as the weight of selling concentrated itself in cyclical stocks. That was due in part to fears that new U.K. measures to stop the spread of Covid-19 could herald a second wave of lockdowns across the developed world as the northern hemisphere moves into autumn, the time when seasonal flu generally begins to pick up. United Airlines stock was down 8.0% while Delta Air Lines (NYSE:DAL) stock was down 8.8%. Airline stocks are particularly at risk to a renewed downturn because they may find it harder to get the attention of lawmakers as they pursue a second round of bailout money.
Washington DC was consumed at the weekend by the implications of the death of Supreme Court justice Ruth Bader Ginsburg, which prepares the ground for another bitter dispute over how and when to appoint new judges - a process that could derail the already difficult process of reaching a compromise agreement on a fourth round of economic support measures.
"Markets tend to overestimate political focus on economic matters," Paul Donovan, chief economist with UBS Global Wealth Management, said in a morning note. "A vacancy on the U.S. supreme court will increase political polarization and shift political focus."