On 1 December, U.S. equity markets retreated on news that the first case of the COVID virus’s Omicron variant had appeared in the U.S.
The Dow shed 461 points on the day, about 1.3 percent. The NASDAQ had gained 1.8 percent earlier in the day but gave it all back by the market’s close.
The Standard & Poor’s 500 index slid 1.2 percent, closing below its 50-day moving average for the first time since 13 October.
All 11 sectors in the index lost at least 1 percent. Stock values in consumer staples, communications, financial services, manufacturing, and materials all shrank at least 2 percent.
Despite more intrusive lockdowns, vax mandates and travel restrictions being imposed across the globe, the attitude on The Street was that “investors” and portfolio managers do not expect Omicron to derail the economy. However, they did bail out of speculative stock sectors and more into growth stocks while the variant’s threat is more fully assessed.
However, with P/E ratios near record highs the pullback also raised concerns that the Dow, Nasdaq and Russell 2000 are overvalued. And in the current era of “trading” market players jump into “crowded trades”, often steered by business media hype and social media campaigns, then sell in unison when news makes the stock less attractive.
And with profits from the booming markets filling investors and money managers pockets, they bailed out of equity markets to hold great gains the markets have returned this year.
The NASDAQ and S&P have swelled 20 percent to date in 2021. Full-year profits for S&P-listed companies could average 40 percent, according to the WSJ.
The first U.S. Omicron case was found in California, but had already been detected in 23 countries after first being identified in South Africa last month.
It has since been confirmed in Minnesota, New York, and other states.
Travel stocks tanked, with American Airlines losing 8 percent, Delta Air Lines down 7.3 percent, United Airlines giving up 7.5 percent, and plane maker Boeing off 4.8 percent.
Norwegian Cruise Line Holdings sank 8.8 percent and Carnival 7 percent; Wynn Resorts lost 6.1 percent; Hilton Worldwide Holdings 3.8 percent. The small-cap Russell 2000 index shrank by 2.3 percent on the day.
Brent crude, the world’s oil pricing standard, has fallen from more than $84 a barrel on 9 November to barely above $65 on 1 December, ending the commodity’s worst month since March 2020.
It has since edged up, closing above $70 a barrel on 6 December.
Markets also fell after U.S. Federal Reserve front man,Jerome Powell, said in 30 November testimony before Congress that the Fed might end its monthly bond purchases sooner than mid-2022, the end date the central bank had previously indicated (see related story in this issue).
November proved to be a volatile month for equities. The Dow lost 2.8 percent over the month, the S&P 0.8 percent, but the NASDAQ edged up 0.25 percent.
The Russell 2000, heavy with small-cap stocks sensitive to fluctuations in the economy and investors’ intuitions about it, slid 4.8 percent.
In Europe, the Stoxx 600 index slipped 0.6 percent on Friday.
In Asia, the Shanghai Composite Index rose 0.9 percent, Japan’s Nikkei was up 1 percent, and the South Korean KOSPI gained 0.8 percent.
Hong Kong’s Hang Seng was off 0.1 percent.
TREND FORECAST: As we have detailed in the COVID War section of this Trends Journal, nations across the globe have imposed lockdowns and mandates before and following the Omicron hysteria. Indeed, the reason for the U.S. market selloff was the news of one Omicron case out of 333 million people.
So far, as we have extensively detailed, the Omicron variant is showing itself to be milder than Delta or the original COVID, even if Omicron seems to be more transmissible. And, to date, no one has died from it and most who have been infected have been fully vaxxed.
While most states in the U.S. reaction will take less extreme actions to fight the new variant than those overseas, as we have noted in this Trends Journal, the mayor of New York issued extreme forced-vax mandates yesterday that will negatively hit the hospitality, restaurant sectors, office occupancy, entertainment and other sectors hard. Also, with the U.S. imposing new travel restrictions and mandates, this too will bring these and other sectors down.