The U.S. stock markets plunged alongside oil prices and U.S. Treasury yields on Friday, 26th November 2021. This is after South Africa raised the alarm over a fast-spreading strain of the coronavirus, sparking concerns that travel restrictions and other curbs will spoil the global economic recovery.
The World Health Organization (WHO) assigned the newly identified variant with the Greek letter omicron. The formally recognized strain was previously referred to as lineage B.1.1.529. Ultimately, the consensus is that this is a “variant of concern.” Health experts are deeply concerned that this could be more transmissible than other strains of the virus.
The Dow Jones average fell more than 900 points, or 2.5%, for its worst day of the year, while the S&P 500 slumped 2.3%. The Russell 2000 sank 3.7%
The best performers included some of the stay-at-home plays that performed so well in the earlier months of the pandemic, such as Zoom, Peloton, and Moderna. However, travel-related stocks, including airlines and cruise lines were hit hard, and banking shares slipped on worries that an economic slowdown would lower rates.
Bond yields fell in a flight to safety, with the benchmark 10-year yield tumbling 16 basis points to 1.47%, its largest single-session decline since March 2020. In addition, U.S. crude oil collapsed more than 10% to break below USD70 per barrel.
Here are the closing levels on Friday: –
Poor liquidity owing to the Thanksgiving holiday weekend was offered as a reason for the moves being exacerbated.
Travel bans on South African nations from the U.S. and some other countries will have a negative effect to the reopening trades that have done so well recently.
While there is still more to learn about this new variant and its potency, the current stance is to tread with caution. The markets will definitely be looking for more news of the variant to give it direction.
Short sellers, now with the upper hand, will want to force the market to much lower levels if there are any bad news concerning the virus.
What could put a pause on the selling is positive news from Black Friday and Cyber Monday sales, so keep a lookout for it. Dip buyers have been keeping the markets up for some time and it should not surprise you if they come in again on this selloff.
The VIX tells us that the markets will be volatile for the near term so best to be cautious.
Source: CBOE, Reuters, Bloomberg
This commentary was written by James Gomes
James has been in the finance industry for over 30 years and most recently worked for a large US bank for more than 20 years.
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