Stocks slumped as investors rushed into haven assets after the delta variant cast a pall over the economic recovery, while tension between the U.S. and China escalated.

In a reversal of the reopening trade that has fueled this year’s equity rally, cyclical industries led losses in the S&P 500 -- with the benchmark gauge down the most since May. Airlines and cruise operators tumbled amid concern over further travel restrictions, while a gauge of small caps slid more than 2.5%. European shares headed for their biggest slide this year, following a selloff in Asian equities. Treasury 10-year yields dropped below 1.2% for the first time since February.

The resurgence of Covid-19 is stoking a risk-off mood as investors consider whether new lockdown restrictions will sap the economic rebound and reverse an equity surge that had driven stocks to record highs. Meantime, the U.S., U.K. and their allies formally attributed the Microsoft Exchange hack to actors affiliated with the Chinese government and accused the Chinese government of a broad array of “malicious cyber activities.”

“Many investors are wondering whether they can justify holding equities when valuations are so stretched and at a time when they are forced to reprice some of the optimism they had baked in with the grand opening of major economies,” said Fawad Razaqzada, an analyst at ThinkMarkets.

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Some key events to watch this week:

• Reserve Bank of Australia meeting minutes Tuesday
• European Central Bank rate decision Thursday
• Bank Indonesia rate decision Thursday
• U.S. existing home sales Thursday
• The Tokyo Summer Olympics begin Friday

Here are some of the main market moves:

Stocks

• The S&P 500 fell 1.9% as of 10:26 a.m. New York time
• The Nasdaq 100 fell 1.3%
• The Dow Jones Industrial Average fell 2.3%
• The Stoxx Europe 600 fell 2.7%
• The MSCI World index fell 2%
• The Russell 2000 Index fell 2.6%

Currencies

• The Bloomberg Dollar Spot Index rose 0.2%
• The euro was little changed at $1.1815
• The British pound fell 0.6% to $1.3681
• The Japanese yen rose 0.8% to 109.19 per dollar

Bonds

• The yield on 10-year Treasuries declined 11 basis points to 1.18%
• Germany’s 10-year yield declined five basis points to -0.40%
• Britain’s 10-year yield declined 11 basis points to 0.52%

Commodities

• West Texas Intermediate crude fell 5.9% to $67.55 a barrel
• Gold futures fell 0.1% to $1,812.90 an ounce