U.S. stocks fell as a post-Thanksgiving sell-off spread across global markets amid fears that a new variant of the coronavirus identified in South Africa could trigger new epidemics and undermine a fragile economic recovery. Haven’s assets surged.
Stock indices fell across the board, with cyclicals and small caps taking the brunt of the sales. The S&P 500 index fell 1.9% while the Dow Jones Industrial Average and the Russell 2000 fell at least 2.5%. Travel and leisure stocks fell, while home stay stocks rose. This helped soften the losses of the Nasdaq 100, which was still down 1.5%.
Treasuries surged, lowering the 10-year yield by 13 basis points, as traders pushed back expectations for rate hikes. The Japanese yen became the main safe haven currency for the day, with the dollar falling. Oil fell to $ 70 a barrel in New York and gold soared.
The World Health Organization and scientists in South Africa are reportedly working “lightning fast” to determine how quickly variant B.1.1.529 can spread and whether it is resistant to vaccines. The new threat comes on top of the wall of concern investors already face in the form of high inflation, monetary tightening and slowing growth.
“This is terrible news,” said Ipek Ozkardeskaya, senior analyst at Swissquote, in comments sent via email. “The new Covid variant could hit the economic recovery, but this time central banks will not have enough room to act. They cannot fight inflation and stimulate growth at the same time. They have to choose.
Carnival Corp. and Royal Caribbean Cruises Ltd. lost at least nine percent each, while United Airlines Holdings Inc. lost 10 percent. Zoom Video Communications Inc. and Peloton Interactive Inc. grew at least five percent.
“It’s a big shock to the people who wake up (and) see the news,” said Carl Dooley, trade manager for Europe, Middle East and Africa at Cowen. “Uncertainty and fear will remain high and maybe we will not return to new heights just yet.”
The sell-off comes after global markets have taken a Jekyll-and-Hyde stance for months, with stocks rallying to new highs even as concerns have escalated over a toxic combination of high inflation and slower growth. Investors invested nearly $ 900 billion in long-term and exchange-traded funds in 2021, exceeding the combined total of the past 19 years.
“At these valuations, any kind of headline is going to cause that pullback,” said Brian Vendig, chairman of MJP Wealth Advisors, in an interview with Bloomberg TV. “You certainly don’t want to be 100% in risky assets – whether it’s its interest rate risk, its inflation risk, its political risk and now another clue of the healthcare crisis causing us all know that we are not out of the pandemic. “
Traders pushed back the planned timeline of a first 25 basis point rate hike by the Federal Reserve to September from June, while briefly pricing any further hikes in 2023.
They are also betting on an increase of less than 10 basis points for the Bank of England next month, up from 35 basis points projected a month ago. They called for a seven basis point tightening of the European Central Bank by December 2022 from the nine basis points seen on Thursday.
The yen and Swiss franc found offers from safety-conscious traders, while the dollar posted a modest loss. A gain in the euro, the largest component of the Bloomberg Dollar Spot Index, also held back the greenback.
MSCI Inc.’s Asia-Pacific equities indicator fell to its lowest since early October, with indicators for Japan and Hong Kong falling at least 2% each.
Some of the most affected assets were in emerging markets. The currency of South Africa, where the virus strain was identified, lost 1% and the Turkish lira fell 2.4%. The MSCI EM Currency Index fell to its lowest level in six weeks.
As sales continued unabated, some investors said it was important not to get carried away by short-term nervousness.
“The markets have grown very strongly over the past 12 months so it’s not surprising to see such a reaction,” said Dan Boardman-Weston, chief investment officer at BRI Wealth Management. “If this is to set the world back from a Covid point of view, then it is likely that inflation will subside and monetary policy will remain looser for a long time, which should be positive for markets over the medium term.”
(Except for the title, this story was not edited by NDTV staff and is posted from a syndicated feed.)