Wall St Week Ahead COVID-19 fears reappear as a threat to the market

The floor of the New York Stock Exchange (NYSE) is seen after markets close in New York, United States on March 18, 2020. REUTERS / Lucas Jackson

NEW YORK, Nov. 26 (Reuters) – COVID-19 has resurfaced as a concern for investors and a potential driver of significant market moves after a new variant raised the alarm, long after the threat had receded in the eyes of Wall Street.

Concerns over a new strain of the virus, named Omicron and listed by the World Health Organization as a worrying variant, slammed markets around the world and made the S&P 500 Index its biggest percentage loss on a year. day in nine months. The moves came a day after the Thanksgiving holiday in the United States, when low volume likely exacerbated the moves.

With little information on the new variant, the longer-term implications for U.S. assets were unclear. At least investors have said signs that the new strain is spreading and questions over its vaccine resistance could weigh in on the so-called reopening of trade that has boosted markets at various times this year.

The new tension may also complicate the outlook for how aggressively the Federal Reserve is normalizing monetary policy to fight inflation.

“The markets were celebrating the end of the pandemic. Slam. It’s not over,” said David Kotok, president and chief investment officer at Cumberland Advisors. “All the political issues, namely monetary policy, trade trajectories, estimates of GDP growth, recovery of leisure and hospitality, the list goes on, are on hold.”

The S&P 500 fell by a third as fears of a pandemic escalated in early 2020, but its value has more than doubled since then, although the ebb and flow of the pandemic has resulted in rotations at times. violent in the types of stocks that investors favor. The index is up more than 22% this year.

By Friday, greater vaccine availability and advances in treatments made markets potentially less susceptible to COVID-19. The virus had fallen to fifth place in a list of so-called “tail risks” to the market in a recent survey by BofA Global Research of fund managers, with inflation and central bank hikes taking the top spots .

On Friday, however, tech and growth stocks that had thrived during so-called home-based trading last year soared, including Zoom Communications (ZM.O), Netflix Inc (NFLX.O) and Peloton. (PTON.O).

At the same time, stocks that had rallied this year on economic reopening bets could suffer if virus fears grow. Energy, financials and other economically sensitive stocks fell on Friday, as did those of many travel-related companies such as airlines and hotels.

The new variant of the Omicron coronavirus spread further around the world on Sunday, with 13 cases found in the Netherlands and two each in Denmark and Australia, even as more countries tried to shut down with restrictions of travel.

First discovered in South Africa, the new variant has also been detected in Great Britain, Germany, Italy, the Netherlands, Denmark, Belgium, Botswana, Israel, Australia and Hong Kong. Read more

Friday’s swings also spiked the Cboe Volatility Index (.VIX), known as the Wall Street fear gauge, and options investors rushed to protect their portfolios against further swings in the market. Marlet. Read more

Andrew Thrasher, portfolio manager for The Financial Enhancement Group, had worried about recent gains by a handful of heavily weighted tech stocks in the S&P 500, including Apple Inc (AAPL.O), Amazon.com Inc (AMZN. O), Microsoft Corp (MSFT.O) masked the weakness of the broader market.

“This has allowed sellers to drive markets down and the latest COVID news appears to have stoked that bearish flame,” he said.

Some investors have said the latest COVID-19 weakness could be a chance to buy stocks at comparatively lower levels, expecting the market to continue to recover quickly from lows, a trend that has marked its march to record highs this year.

“We’ve had many days when economic optimism crumbles. Each of those optimism slumps was a good buying opportunity,” wrote Bill Smead, founder of Smead Capital Management, in a note to investors. Among the stocks he recommended were Occidental Petroleum (OXY.N) and Macerich Co (MAC.N), down 7.2% and 5.2% respectively on Friday.

One of the many wild cards is whether economic uncertainty from the virus will slow down the Federal Reserve’s plans to normalize monetary policy, just as it has begun to unwind its $ 120 billion bond purchase program. dollars per month.

US federal funds rate futures, which track short-term interest rate expectations, showed investors on Friday that they were reconsidering their views on a rate hike sooner than expected.

Investors will follow the appearance of Fed Chairman Jerome Powell and U.S. Treasury Secretary Janet Yellen before Congress to discuss the government’s COVID response on November 30 as well as US employment numbers. United, which should be released next Friday.

Investors were hopeful that the markets could stabilize. Jack Ablin, chief investment officer at Cresset Capital Management, said the measures may have been overstated by the lack of cash on Friday, with many attendees absent for the Thanksgiving holiday.

“My first reaction is that everything we’re going to see today is overkill,” Ablin said.

Reporting by Saqib Iqbal Ahmed; Additional reporting by Chuck Mikolajczak, Megan Davies and Lewis Krauskopf; Written by Ira Iosebashvili; Editing by Megan Davies, Richard Chang and Alexander Smith

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