Stocks bounced slightly on Monday from Friday’s big sell-off but investors still fretted what the new omicron Covid variant would mean for the economy.
The bounce was led by tech stocks, while travel-related names and shares linked to the economy remained under pressure.
The Dow Jones Industrial Average gained about 25 points, after rising more than 380 points earlier in the session. The S&P 500 added 0.8% and the tech-focused Nasdaq Composite rose about 1.2%. The small-cap benchmark Russell 2000, full of the most economically sensitive stocks, was 0.3% in the red.
Stocks are coming off a holiday-shortened session Friday in which the Dow posted its worst day since October 2020. The Dow was down 905 points, or 2.5%. The S&P 500 tumbled 2.3% and the Nasdaq Composite slipped 2.2%. The three major indexes were negative for the week.
“There are still more questions than answers regarding the omicron variant, but after what happened on Friday, the bounce today is a welcome sign,” said Ryan Detrick of LPL Financial. “We’ve seen other variants cause some indigestion, but after a little bit of time things were able to calm down and move forward. We’re optimistic that will be the playbook once again.”
Stocks that were the hardest hit on Friday, travel-related and cyclical stocks, opened higher but then fell as the day went on.
Mega-cap technology names emerged the winners on Monday with Tesla popped more than 4%, Microsoft up 2.4% and Amazon and Apple gaining 1% each. Twitters shares rose, and have since been halted, on news that CEO Jack Dorsey is stepping down as chief of the social media company.
“We would be aggressive buyers of this pullback,” wrote Fundstrat’s Tom Lee in a note to clients Sunday night. “As with the case for Beta and Delta variants, the ‘bark’ has proven worse than the bite in each of those precedent instances. The market carnage, in our view, will be short-lived and transitory.”
Merck was the largest drag on the Dow, dropping more than 4% after Citi downgraded the stock to neutral from buy, saying in a note to clients that development struggles for the company’s HIV drug was taking a bite out of Merck’s long-term potential.
The World Health Organization on Friday labeled the omicron strain a “variant of concern.” While scientists continue to research the variant, omicron’s large number of mutations has raised alarm. Preliminary evidence suggests the strain has an increased risk of reinfection, according to the WHO. The variant was first reported to the WHO from South Africa and has been found in the U.K., Israel, Belgium, the Netherlands, Germany, Italy, Australia and Hong Kong, but not yet in the U.S. Many countries, including the U.S., moved to restrict travel from southern Africa.
The South African doctor who first raised the alarm over the new variant told the BBC that patients had “extremely mild” symptoms though it was too early to determine how omicron behaves before it is studied closely.
“While it is too early to have definitive data, early reported data suggest that the Omicron virus causes ‘mild to moderate’ symptoms (less severity) and is more transmissible,” Bill Ackman of Pershing Square Capital Management tweeted Sunday evening. “If this turns out to be true, this is bullish not bearish for markets.”
The 10-year Treasury yield rebounded back above 1.5% after a flight to safety Friday sent investors scrambling into bonds and rates lower (Prices move inversely to yields).
One stock that continued its Friday trend was Moderna. The vaccine maker’s stock was up another 8% on Monday after jumping 20% on Friday.
Vaccine makers have announced measures to investigate omicron with testing already underway. While it remains to be seen how omicron responds to current vaccines or whether new formulations are required, Moderna’s Chief Medical Officer Paul Burton said Sunday the vaccine maker could roll out a reformulated vaccine against the omicron variant early next year.
Wall Street’s fear gauge — the CBOE volatility index — was retreating again Monday after a 10-point spike on Friday. UBS looked at the last 17 times since 1990 when the VIX surged 10 points in a single day and found markets tended to snap back in the subsequent trading days. The S&P 500 was higher by 2.5%, on average, the next trading day and 1.6% higher, on average, over the next week, UBS found.
On top of Covid developments, investors are also anticipating key economic data released this week.
The November jobs report on Friday is expected to show solid jobs growth. Economists surveyed by Dow Jones expect 581,000 jobs added in November.