Stocks slump on virus spike before Georgia runoff

Volatility gripped financial markets, spurring a stock sell-off amid concern that a surge in global coronavirus cases could crimp the nascent economic recovery. Traders were also jittery ahead of Tuesday's runoff elections in Georgia, which could determine whether Democrats have control of Congress to push President-elect Joe Biden's agenda.

All major U.S. equity benchmarks slumped more than 2% earlier Monday, and the S&P 500 was still on track for its biggest slide in almost 10 weeks. Apple and Amazon.com sank at least 2.4%, Boeing weighed on the Dow Jones Industrial Average after an analyst downgrade, while Tesla climbed after coming close to meeting its vehicle-deliveries goal. The Cboe Volatility index was poised for its biggest surge since September. The dollar was little changed after earlier falling toward its lowest level in almost three years.

Global coronavirus infections climbed above 85 million, fueling concern over more stringent restrictions. Daily cases in the U.S. soared to a record of nearly 300,000 following the New Year holiday, and an easier-to-spread variant detected for the first time last week could intensify the surge. Meanwhile, the non-stop political drama of 2020 is bleeding into the first week of 2021 — with a pivotal election in Georgia, promises of protests in the streets and President Donald Trump's dragged-out fight over the November vote threatening to tear apart the Republican Party.

"Equity markets will remain sensitive to developments tied to the pandemic that have held the U.S. and global economy hostage for nearly a year," John Stoltzfus, chief investment strategist at Oppenheimer, wrote in a note. "A nearer hurdle for the markets to consider will be the outcome of the runoff elections for two seats in the U.S. Senate taking place in Georgia. Should the Democrats win both seats, we expect the S&P 500 to become vulnerable to a downdraft in the neighborhood of 6% to 10%" from the end of 2020.

For Mr. Stoltzfus, it appears that the equities have priced in a Republican victory in at least one of the two contests. He added that "markets prefer that Washington's Capitol Hill have enough checks and balances in place to keep political power out of just one party's hands."

Meanwhile, traders see U.S. inflation averaging at least 2% a year over the coming decade, the first time expectations have climbed that high since 2018. The 10-year break-even rate — a measure that draws on pricing for inflation-linked Treasuries — has gained momentum amid bets on an uptick in the world economy. Federal Reserve Bank of Chicago President Charles Evans said the U.S. central bank shouldn't be shy about letting inflation run, as it has promised, above its 2% target to make up for years of undershooting that goal.

Elsewhere, bitcoin's rally fizzled out as the famously volatile cryptocurrency sank as much as 17%. After a parabolic 2020, the digital currency surged as high as $34,000 Sunday, hitting all-time highs.