[New York, 26th, Reuters]–The new coronavirus is re-emerging as a major driver of the market. This is because a new mutant strain has been confirmed in South Africa.
On the 26th, the World Health Organization (WHO) designated the new mutant strain “B.1.1.259” detected in South Africa as a “Vocational Mutant Virus (VOC) of Concern”. It was named “Omicron strain”.
The threat to new mutants has shocked markets around the world, with the total 500 S & Ps declining for the first time in nine months. The low volume on the day after the 25th, which was closed for Thanksgiving, may have amplified the price movement.
There is still little information about the new mutants, and the long-term impact on US financial markets is unclear. However, there are signs that the infection is spreading and it is unclear how resistant it is to the vaccine, so it will be a burden for transactions that have been looking at the “economic resumption” that has pushed up the market frequently this year. It looks like it will be.
The outlook for the Fed’s normalization of monetary policy to combat inflation could also be complicated.
“The market was celebrating the end of the pandemic, but it’s not over yet,” said David Kotok, chairman and chief investment officer of Cumberland Advisors.
The total 500 S & P species fell by more than 30% in the spring of 2020 due to concerns about the pandemic of the new coronavirus. After that, it has more than doubled since then. However, the stocks that investors like have changed dramatically from time to time. At present, the rate of increase of the index this year is about 22%.
Until the detection of a new mutant strain, the market was less susceptible to the new corona due to the spread of vaccines and advances in treatment methods.
Inflation and central bank rate hikes ranked high in the “tail risk” section of the market, with the new Corona dropping to fifth place, according to a recent Bank of America (BofA) fund manager survey.
However, in the US stock market on the 26th, it was bought last year thanks to the demand of Corona, such as Zoom Video Communications, a video conference service, Netflix, a major video distribution service, and Peloton Interactive, which sells fitness equipment. “Nesting stocks” increased.
On the other hand, stocks that have risen in anticipation of economic recovery since the beginning of this year are inevitably affected if concerns about new mutant strains increase. Energy, financial and economic sensitive stocks have fallen sharply. Many travel-related companies such as airlines and hotels were also sold.
The US government announced on the 26th that it will restrict the entry of travelers from southern Africa following the detection of a new mutant of the new coronavirus in South Africa.
In Europe as well, following the United Kingdom, Spain and Italy have announced restrictions on entry from parts of Africa, and the response is being strengthened one after another.
Against this backdrop, the Chicago Board Options Exchange (CBOE) Volatility Index (VIX), which shows investor anxiety, has risen to its highest level since early March. Investors are eager to hedge their portfolios in preparation for further market volatility.
Andrew Slasher, Portfolio Manager, Financial Enhancement Group, said the recent rise in a handful of tech stocks, including Apple, Amazon.com, and Microsoft, which occupy a large weight in the 500 S & P totals, is in the market. I was worried that it was covering up the weaknesses of the whole.
“In this situation, sellers have pushed the market down, and the news of this new mutant seems to have ignited a bearish mind,” he said.
On the other hand, some investors think the fall is an opportunity to buy stocks at a relatively low level. Expecting a rapid market recovery, in fact, it has risen to a record high, despite several declines this year.
Bill Smeed, founder of Smeed Capital Management, said in a note to investors, “There have been many times that economic optimism has been hit. They were all good places to buy.” It has said.
Among the stocks he recommended are oil and gas giant Occidental Petroleum and real estate investment trust (REIT) Maserich, which fell 7.2% and 5.2% on the 26th, respectively.
For the Fed, which has just begun to reduce quantitative easing (tapering), it may be necessary to adjust the pace of normalization of monetary policy.
The federal funds (FF) interest rate futures, which show short-term interest rate forecasts, showed on the 26th that early interest rate hike expectations have turned around and receded.
Immediate attention is the congressional testimony of FRB Chairman Jerome Powell and Treasury Secretary Janet Yellen on the 30th, and the US employment statistics released on December 3rd.
Investors expect the market to stabilize. Jack Ablin, Chief Investment Officer at Cresset Capital Management, said the move was exaggerated due to lack of liquidity on the 26th, when many attendees were absent on Thanksgiving holidays. I talked to him.
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