Stocks dropped on Tuesday as volatility resumed after a brief rebound earlier this week, with investors contemplating the impacts of a new coronavirus variant.
The S&P 500, Dow and Nasdaq declined. The Dow, a proxy for cyclical stocks, underperformed against the other two major indexes, dropping more than 200 points, or nearly 0.8%, just after the opening bell Tuesday morning. U.S. crude oil prices (CL=F) dropped more than 2%. And shares of airlines, cruise lines and lodging companies considered to be some of the most exposed to virus-related disruptions each sank in early trading to reverse Monday’s gains.
A host of less upbeat new commentary from major coronavirus vaccine-makers contributed to the selling pressure. Moderna (MRNA) CEO Stephane Bancel told the Financial Times that the company’s current COVID-19 vaccine would likely see a “material drop” in effectiveness against the Omicron variant, while noting more data was needed to see any extent of the decline. Separately, Pfizer’s (PFE) CEO Albert Bourla told CNBC he didn’t “think that the result will be the vaccines don’t protect,” but that “the result could be, which we don’t know yet, the vaccines protect less.”
Both companies have already said they were collecting data on the Omicron variant and that more definitive information would be available in the coming weeks. Researchers have not yet determined whether the new variant is more easily transmitted, or responsible for more severe illness, than previous versions of the virus.
“Information is coming rapidly, it’s evolving in real-time. You can understand why investors [last week] were taking a little bit of a pause, particularly given the liquidity situation we had going into the U.S. holiday season,” Vivek Paul, BlackRock investment institution U.K. chief investment strategist, told Yahoo Finance Live on Monday.
“We think on balance, it would make sense to be invested in the markets at this moment in time,” he added. “It’s all about understanding whether or not this is a delay, or a derailment, of the restart that we’ve seen. And it seems most likely at this moment — not withstanding more information to come— that it looks like a delay.”
The latest commentary on the variant at least momentarily overtook investors’ optimism over remarks Monday from the White House, when President Joe Biden said Omicron was “not a cause for panic.” Biden said he intended to announce the White House’s strategy for addressing coronavirus this winter later this week, and that this plan would not include lockdowns, but would instead emphasize vaccinations, boosters and testing. The Centers for Disease Control and Prevention (CDC) on Monday updated its guidance to say all individuals aged 18 and older “should” get a booster coronavirus vaccine, strengthening this from previous language primarily aimed at getting those considered most at risk an additional dose of the shots.
Prospects that widespread lockdowns would likely not come to the U.S. in the face of the latest variant helped fuel a broad risk-on rally on Monday. This came in sharp contrast with Friday’s moves immediately following the World Health Organization’s announcement of Omicron as a “variant of concern,” which sparked the Dow’s worst plunge since Oct. 2020.
“This is not a repeat of March 2020,” Paul Schatz, Heritage Capital President, told Yahoo Finance Live on Monday. “This looks nothing like March of 2020, yet it’s so recent in our history, people immediately think, ‘Omicron is here, oh my gosh this is going to be a 30% decline, we’re going to go straight down’ … You need to equally weigh history, not weigh it based on how recent it was in your memory.”
Still, the sectors and individual stocks that outperformed on Monday were largely technology names, which have served as defensive trades throughout the pandemic as investors bet on more stay-in-place behavior among consumers.
But at the same time, the emergence of the latest variant has also led a number of pundits to speculate that the Federal Reserve might take a more dovish approach to monetary policy to continue supporting the economy as it deals with ongoing virus-related concerns. That could in turn keep interest rates low for longer and support longer-duration growth stocks.
“To take a step back, I think you had a global economy that in the fourth quarter [of 2020] through last week was looking incredibly strong … and then a new variant comes along,” Andrew Sheets, Morgan Stanley chief cross-assets strategist, told Yahoo Finance Live on Monday. “That would seem to work against a lot of the trades that work in that high-growth environment, and also seemed to disrupt this ‘do central banks need to act more aggressively’ narrative, because if there’s a new variant, then maybe we should be more cautious.”
10:04 a.m. ET: Consumer confidence misses estimates in November: Conference Board
Consumer confidence dropped by a greater-than-expected margin in November compared to October, according to the Conference Board’s closely watched monthly index Tuesday.
The headline confidence index dropped to 109.5 in November, the Conference Board said. This missed consensus expectations for a drop to just 110.9, according to Bloomberg data. October’s confidence index was also downwardly revised to 111.6, from the 113.8 previously reported.
The drop came as subindices tracking consumers’ assessments of both present situations and expectations deteriorated compared to October.
“Expectations about short-term growth prospects ticked up, but job and income prospects ticked down. Concerns about rising prices—and, to a lesser degree, the Delta variant—were the primary drivers of the slight decline in confidence,” Lynn Franco, senior director of economic indicators at the Conference Board, said in a statement. “Meanwhile, the proportion of consumers planning to purchase homes, automobiles, and major appliances over the next six months decreased.”
“The Conference Board expects this to be a good holiday season for retailers and confidence levels suggest the economic expansion will continue into early 2022. However, both confidence and spending will likely face headwinds from rising prices and a potential resurgence of COVID-19 in the coming months,” Franco added.
9:31 a.m. ET: Stocks open lower amid virus fears
Here’s where markets were trading just after the opening bell:
S&P 500 (^GSPC): -32.56 (-0.7%) to 4,622.71
Dow (^DJI): -275.17 (-0.78%) to 34,860.77
Nasdaq (^IXIC): -60.25 (-0.38%) to 15,723.28
Crude (CL=F): -$2.67 (-3.82%) to $67.28 a barrel
Gold (GC=F): +$11.20 (+0.63%) to $1,796.40 per ounce
10-year Treasury (^TNX): -8.6 bps to yield 1.443%
9:07 a.m. ET: Home price growth slowed more than expected in the U.S. in September
U.S. home price growth cooled in September but still remained elevated by pre-pandemic standards, with low interest rates and rising rent costs still stoking home-purchase demand among buyers and pushing up prices.
The S&P CoreLogic Case-Shiller national home price index rose by 19.5% in September over last year, ticking down from a 19.8% rise in August. The closely watched 20-City Composite index, which tracks home price changes across 20 major metropolitan areas in the U.S., rose by 19.1% year-on-year for September, also coming in below the 19.6 rise in August. And the 20-City Composite was also below analyst expectations for a 19.3% gain, according to Bloomberg consensus data.
8:56 a.m. ET: Markets are ‘misreading Fed’s COVID reaction function’: Strategist
According to at least one market pundit, market participants are currently anticipating too much dovishness from the Federal Reserve in response to the latest concerns over the new Omicron variant.
“I suspect that the rates market is misreading the Fed’s COVID reaction function,” Neil Dutta, head of economics at Renaissance Macro Research, wrote in a note Tuesday. “Since the pandemic, each COVID wave has had less of an impact of the economy. For example, during the COVID wave that peaked in January, there was a meaningful slowdown in restaurant traffic.”
“In the most recent wave, there wasn’t a slowdown. Moreover, during the spread of the Delta variant, the Fed ended up making a strong signal to commence tapering in November,” Dutta added. “Thus, I expect to see an unwind of these recent market moves and am skeptical that recent concerns over coronavirus will spill into deeper issues for the U.S. economy.”
7:41 a.m. ET Tuesday: Stock futures sink as Omicron concerns resurge
Here’s where markets were trading Tuesday morning:
S&P 500 futures (ES=F): -34.5 points (-0.74%), to 4,616.50
Dow futures (YM=F): -306.00 points (-0.87%), to 34,177.00
Nasdaq futures (NQ=F): -64.50 points (-0.39%) to 16,326.25
Crude (CL=F): -$1.57 (-2.24%) to $68.38 a barrel
Gold (GC=F):+$7.70 (+0.43%) to $1,792.90 per ounce
10-year Treasury (^TNX): -9.1 bps to yield 1.438%
6:15 p.m. ET Monday: Stock futures hold onto gains
Here were the main moves in markets as the overnight session kicked off:
S&P 500 futures (ES=F): +9 points (+0.19%), to 4,660.00
Dow futures (YM=F): +78 points (+0.22%), to 35,155.00
Nasdaq futures (NQ=F): +29 points (+0.18%) to 16,419.75
Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter