Wall Street stabilizes on Monday after last week’s drop caused by the latest variant of the coronavirus, as investors wait for more clues about the damage it could cause to the economy.
The S&P 500 was up 1.6% in afternoon trading to recoup more than two-thirds of its decline from Friday, which was its worst since February. Bond yields and crude oil also recouped some of their losses on Friday, when the impetus for investors was to seek safety and move away from risky investments.
With the vaccines in hand – and with the benefit of a weekend to reflect on whether Friday’s sharp market moves were overblown – analysts said the world may be in a better position to weather this potential new wave. Additionally, the fall in Friday markets may have been exacerbated by the fact that many traders took time off after Thanksgiving.
But as the market stabilized, caution still weighed on the market due to the discovery of the variant now known as omicron. The variant appears to spread more easily, and countries around the world have erected barriers to travel in the hopes of stemming it. It remains to be seen how effective the currently available vaccines are for the variant and how long it may take to develop new vaccines specific for omicron.
âThere are still more questions than answers regarding the new variant,â said Ryan Detrick, chief market strategist for LPL Financial. âAt the same time, we’ve been living with COVID-19 for almost 20 months now, and we’ve seen several variations. “
Given the uncertainty, the Dow Jones Industrial Average fluctuated between a loss of 3 points and a gain of 388 points during the day. It was most recently up 300 points, or 0.9%, to 35,199 at 2:35 p.m. EST.
The strongest lift for stocks has come from those who have been able to grow strongly, almost regardless of how strong the economy is or how weak the pandemic is. Gains from five major tech-focused stocks – Microsoft, Tesla, Apple, Amazon, and Nvidia – alone accounted for more than a third of the S&P 500’s rise. Gains in tech-focused stocks also contributed to increase the Nasdaq composite by 1.9%, the market leader.
Moderna jumped 7.4% for the S&P 500’s biggest gain, adding to an even bigger gain from Friday, after saying it was testing the effectiveness of its omicron vaccine. Its CEO said in an ABC TV interview that it could take two to three months for a vaccine developed specifically for the variant to start manufacturing.
Travel-related stocks started the day with gains, but retreated as more caution crept into the market and global travel restrictions remained in place. They were mixed after President Joe Biden said he was not considering a blanket lockdown of the United States. He said the variant was a cause for concern and “not a cause for panic.”
It also reassured investors who feared a crackdown on the virus would leave the economy as collateral damage. Small stocks in the Russell 2000 Index, for example, rose 0.4%, rebounding from a 0.6% loss earlier today. It had risen to 1.6% by early morning.
The 10-year Treasury yield climbed to 1.53% from 1.49% on Friday night, recouping some of its steep 1.64% drop that day. It tends to rise and fall depending on expectations of economic strength and inflation.
The VIX, an index that measures how worried investors are about upcoming declines in the S&P 500, also weakened significantly. But that’s not all the way back to where it was before omicron.
In addition to waiting for more clues as to the economic damage omicron will ultimately cause, the market has several important milestones this week that could tip prices. Headlining is likely Friday’s jobs report, where economists expect employer hires to pick up in November.
Omicron adds more risk to a global economy already grappling with crippling uncertainty. Travel bans, including recent moves by Japan and Israel to ban foreign visitors, threaten to disrupt global trade. Global supply chains already clogged with bottlenecks could become even more tangled if epidemics shut down factories, ports and freight stations.
Shipping problems could push prices up, adding to inflationary pressures. In response, the world’s central banks could raise interest rates and jeopardize the recovery from the brief but intense coronavirus recession of last year.
“Omicron reinforces that the economy remains linked to the pandemic,” Mark Zandi, chief economist at Moody’s Analytics, said on Twitter Monday. “With each new wave of the pandemic, the economy will suffer from slower growth and higher inflation.”
The US economic recovery lost momentum when the highly contagious delta variant hit in the summer. Economic growth slowed to an annual rate of 2.1% from July to September, 6.7% from April to June, and 6.3% from January to March. The S&P 500 had its worst eleven of the year in September, falling 4.8%.
Yet more Americans are now vaccinated and the economy has shown resilience, picking up speed after the summer downturn. Zandi tweeted that “the most likely scenario is that the economy will fare better through each wave than the last.”
Of course, the only way to know which scenario will ultimately happen is to wait and see it happen. And that uncertainty in the meantime could lead to more swings in the stock market, which has jumped more than 24% this year and set a record no later than Nov. 18.
âWe’re just going to be in the dark for several weeks here,â LPL’s Detrick said.