Aug 2 (Reuters) – Wall Street’s main indexes gave up early gains on Monday as worries about the Delta variant of the coronavirus and a slowing U.S. economy overshadowed optimism around more fiscal stimulus and a strong second-quarter earnings season.

Data earlier in the day showed that although U.S. manufacturing grew in July, its pace slowed for a second straight month as spending rotated back to services from goods, and shortages of raw materials persisted. read more

Only five of the 11 S&P indexes were trading higher by early afternoon, led by real estate (.SPLRCR) and utilities (.SPLRCU), generally considered safe bets at a time of uncertainty.

The weaker-than-expected data also sent the benchmark 10-year bond yield to its lowest since July 20 and oil prices tumbling 4%.

Trillions of dollars in stimulus had lifted Wall Street to record highs following the coronavirus-driven crash last year, but the threat from the Delta variant and rising inflation have recently capped gains.

“Higher inflation is the biggest threat to the market because without that the Federal Reserve won’t need to raise rates aggressively and the markets are pretty much positioned to continue higher on low rates,” said Jack Ablin, chief investment officer at Cresset Wealth Advisors.

With higher interest rates hitting stock valuations, Ablin said investors need to focus on stocks whose “organic earnings growth and dividend yield can help them push higher. That’s not tech; those are financials, healthcare and industrials”.

By 12:15 p.m. ET, the Dow Jones Industrial Average (.DJI) was trading flat after hitting an intra-day record high earlier in the day.

The S&P 500 (.SPX) was up 0.05%, and the Nasdaq Composite (.IXIC) was up 0.23%, both boosted by a 4.1% jump for Tesla Inc (TSLA.O) on top of a 6.8% gain last week.

Square Inc (SQ.N), the payments firm of Twitter Inc (TWTR.N) co-founder Jack Dorsey, jumped 10.3% after it said it would purchase Australian buy now, pay later pioneer Afterpay Ltd (APT.AX) for $29 billion. read more

Economy-linked industrials (.SPLRCI) fell 0.3%, giving up early gains that were spurred by a $1 trillion plan by the Senate to invest in roads, high-speed internet and other infrastructure. read more

With manufacturing activity data coming in softer than expected, focus now turns to services sector data on Wednesday and the Labor Department’s monthly jobs report on Friday. read more

“I don’t think investors are worried about broader macroeconomic numbers even if they are showing signs of a slowdown; the concern lies in the risk of reopening being on pause because of the spread of the Delta variant,” said Dennis Dick, a proprietary trader at Bright Trading LLC.

After mixed quarterly reports from technology behemoths last week, all eyes this week are on earnings from companies including Eli Lilly and Co (LLY.N), CVS Health Corp (CVS.N) and General Motors Co (GM.N).

Advancing issues outnumbered decliners 1.26-to-1 on the NYSE and 1.24-to-1 on the Nasdaq.

The S&P index recorded 74 new 52-week highs and two new lows, while the Nasdaq recorded 92 new highs and 48 new lows.

Reporting by Sagarika Jaisinghani, Sruthi Shankar and Shashank Nayar in Bengaluru; Editing by Shounak Dasgupta and Arun Koyyur

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