Week 47 in Brief
U.S. stocks traded and closed lower on Friday, as stocks around the world tumbled in the face of a new Covid-19 variant. Oil prices were also badly hit.
How did the major indices perform?
- The Dow Jones Industrial Average dropped 905.04 points, or 2.53%, for its worst day of the year, closing at 34,899.34.
- The S&P 500 index lost 2.27% to close at 4,594.62,
- The Nasdaq Composite slipped 2.23% to finish at 15,491.66. The Dow was down more than 1,000 points at session lows.
What drove the US market?
- Coronavirus news: Stocks took a hit after World Health Organization officials on Thursday warned of a new Covid-19 variant that’s been detected in South Africa. The new variant contains more mutations to the spike protein, the component of the virus that binds to cells, than the highly contagious delta variant. Because of these mutations, scientists fear it could have increased resistance to vaccines, though WHO said further investigation is needed. On Friday, the WHO deemed the new strain a variant of concern and named it omicron.
- The United Kingdom temporarily suspended flights from six African countries due to the variant. Israel barred travel to several nations after reporting one case in a traveler. Two cases were identified in Hong Kong. Belgium also confirmed a case.
- Bond Prices: Investors are pushing into safe-haven investments. Bond prices rose and yields tumbled amid a flight to safety. The yield on the benchmark U.S. 10-year Treasury note fell 15 basis points to 1.49% (1 basis point equals 0.01%). This was a sharp reversal, as yields jumped earlier in the week to above 1.68% at one point. Bond yields move inversely to prices.
- It was a shortened trading session that ended at 1 pm ET after the markets were closed Thursday for Thanksgiving. Traditionally, this half-day session is lower in trading volume, which can exacerbate the swings in the market.
Which US stocks were in focus Friday?
- Travel-related stocks were hit hardest, with Carnival Corp. and Royal Caribbean down 11% and 13.2%, respectively. United Airlines dropped more than 9%, while American Airlines dropped 8.8%. Boeing lost more than 5%, and Marriott International fell nearly 6.5%.
- Bank shares retreated on fears of the slowdown in economic activity and the retreat in rates. Bank of America dropped 3.9%, and Citigroup slid 2.7%.
- Industrials linked to the global economy declined, led by Caterpillar, off by 4%. Chevron dropped 2.3% as energy stocks reacted to the rollover in crude prices.
- But not all stocks took a beating. Within the S&P 500, healthcare stocks climbed, led by Covid vaccine manufacturers Moderna (MRNA) and Pfizer (PFE). Moderna shares closed up more than 20%, while Pfizer stock rose more than 6%.
- Some of the stay-at-home plays that gained in the earlier months of the pandemic were higher again. Zoom Video and Peloton each added more than 5%.
How did the European markets perform?
- European stocks plummeted amid widespread selling on Friday, as reports of a newly identified and possibly vaccine-resistant coronavirus variant stoked fears of a fresh hit to the global economy and drove investors out of riskier assets.
- The benchmark STOXX 600 index ended 3.7% down in its worst session since June 2020, while the volatility gauge for the main stock market hit a near 10-month high. The day’s losses saw the STOXX 600 lose 4.5% this week.
- France’s CAC 40 shed 4.8%. UK’s FTSE 100 dropped 3.6%, while Germany’s DAX fell 4.2% and Spain’s IBEX lost 5.0%.
- Among the European stock sectors, travel and leisure plummeted 8.8% in its worst day since the COVID-19 shock sell-off in March 2020.
- The virus scare prompted eurozone money markets to scale back bets of a rate hike from the European Central Bank next year. The odds of a 10-basis point rate hike in December 2022 almost halved from 100% earlier this week.
- Eurozone government bond yields dropped, pressuring European bank stocks, which lost 6.9%.
- Oil & gas producers slumped 5.8%, while miners tumbled 5.0% as oil and metal prices lost ground as reports of the new virus variant fueled economic slowdown worries.
- The technology sector had relatively smaller losses, thanks to gains in stay-at-home stocks. Defensives such as healthcare and utilities fell the least.
How did Asian markets perform?
- MSCI’s index of Asian shares outside Japan dropped 2.44%, its sharpest fall since late July.
- Asia markets were hit hard in Friday trade, with Japan’s Nikkei 225 and Hong Kong’s Hang Seng index both falling more than 2%.
- In stocks, Alibaba stock suffered its biggest 5-day selloff in history this week. That five-day selloff was by far the biggest since the stock went public in September 2014. But despite slashing their price target by 35%, analysts remain positive about the China-based e-commerce company.
Commodities and Bonds
- In commodities, oil prices plunged while gold prices reversed earlier gains seen amid the move away from riskier assets.
- US oil futures fell more than 12%, or almost $10, to $68.82 per barrel around the time of the stock market close. The global benchmark Brent dropped more than 10% to $73.66 per barrel.
- U.S. Treasury debt yields posted their sharpest drop since the pandemic began. Treasuries benchmark 10-year notes last rose to yield 1.4867%. The 2-year note last rose to yield 0.4941%, from 0.644%.
- Spot gold prices were down 0.09%.
- The US dollar, measured by the ICE US Dollar Index, which pegs it against its main rivals, was down 0.757%, with the euro up 1% to $1.1318.
- As investors dashed for safe-haven assets, the Japanese yen strengthened 1.87% versus the greenback, while sterling was last trading at $1.3331, up 0.08% on the day.
- Cryptocurrencies also felt the heat, dropping across the board. Bitcoin was down more than 8% in the early afternoon, according to CoinDesk data
Investors will get the last bit of tech and retail earnings releases including from Salesforce, GlobalFoundries, and Hewlett Packard Enterprise, as well as key economic data from across the world.