New COVID Strain Sinks US Stocks 11/26 15:26
Stocks sank Friday, with the Dow Jones Industrial Average briefly falling
more than 1,000 points, as a new coronavirus variant first detected in South
Africa appeared to be spreading across the globe.
NEW YORK (AP) -- Stocks sank Friday, with the Dow Jones Industrial Average
briefly falling more than 1,000 points, as a new coronavirus variant first
detected in South Africa appeared to be spreading across the globe. Investors
were uncertain whether the variant could potentially reverse months of progress
at getting the COVID-19 pandemic under control.
The S&P 500 index dropped 106.84 points, or 2.3%, to close at 4,594.62. It
was the worst day for Wall Street's benchmark index since February.
The index was dragged lower by everything from banks, travel companies and
energy companies as investors tried to reposition to protect themselves
financially from the new variant. The World Health Organization called the
variant "highly transmissible."
The price of oil fell about 13%, the biggest decline since early in the
pandemic, amid worries of another slowdown in the global economy. That in turn
dragged down energy stocks. Exxon shares fell 3.5% while Chevron fell 2.3%.
The blue chips closed down 905.04 points to end the day at 34,899.34. The
Nasdaq Composite lost 353.57 points, or 2.2%, to 15,491.66.
"Investors are likely to shoot first and ask questions later until more is
known," Jeffrey Halley of Oanda said in a report. That was evident from the
action in the bond market, where the yield on the 10-year Treasury note fell to
1.48% from 1.64% on Wednesday. As a result, banks took some of the heaviest
losses. JPMorgan Chase dropped 3%.
There have been other variants of the coronavirus -- the delta variant
devastated much of the U.S. throughout the summer -- and investors, public
officials and the general public are jittery about any new variant that's
spreading. It's been nearly two years since COVID-19 emerged, killing more than
5 million people around the globe so far.
Cases of the new variant were found in Hong Kong, Belgium and Tel Aviv as
well as major South African cities like Johannesburg.
The economic impacts of this variant were already being felt. The European
Union and the U.K. both announced travel restrictions from southern Africa on
Friday. After the market closed, the U.S. also put travel restrictions on those
coming from South Africa as well as seven other African nations.
Airline stocks quickly sold off, with United Airlines dropping 9.6% and
American Airlines falling 8.8%.
"COVID had seemingly been put in the rear-view mirror by financial markets
until recently," Douglas Porter, chief economist at BMO Capital Markets. "At
the least, (the virus) is likely to continue throwing sand in the gears of the
global economy in 2022, restraining the recovery (and) keeping kinks in the
Even Bitcoin got caught up in the selling. The digital currency dropped 8.4%
to $54,179, according to CoinDesk.
One sign of Wall Street's anxiety was the VIX, the market's measurement of
volatility that is sometimes referred to as its "fear gauge." The VIX jumped
53.6% to a reading of 28.54, its highest reading since January before the
vaccines began to be widely distributed.
Fearful of more lockdowns and travel bans, investors moved money into
companies that largely benefited from previous waves, like Zoom Communications
for meetings or Peloton for at-home exercise equipment. Shares in both
companies rose nearly 6%.
The coronavirus vaccine manufacturers were among the biggest beneficiaries
of the emergence of this new variant and the subsequent investor reaction.
Pfizer shares rose more than 6% while Moderna shares jumped more than 20%.
Merck shares fell 3.8%, however. While U.S. health officials said Merck's
experimental treatment of COVID-19 was effective, data showed the pill was not
as effective at keeping patients out of the hospital as originally thought.
Investors are worried that the supply chain issues that have impacted global
markets for months will worsen. Ports and freight yards are vulnerable and
could be shut by new, localized outbreaks.
"Supply chains are already stretched,'' said Neil Shearing, an economist
with Capital Economics in London. "A new, more dangerous, virus wave could
cause some workers to temporarily exit the workforce, and deter others from
returning, making current labor shortages worse.''
The variant also puts more pressure on central banks that are already faced
with a dilemma: whether and when to raise interest rates to combat rising
inflation. "The threat of a new, more serious, variant of the virus may be a
reason for central banks to postpone plans to raise interest rates until the
picture becomes clearer,'' Shearing said.
Stock trading the Friday after Thanksgiving is typically the slowest day of
the year, with the market closing at 1 p.m. Eastern. However volume on Friday
was much higher than it would typically be for a holiday-shortened day. Roughly
3.4 billion shares exchanged hands on the New York Stock Exchange, which is
only modestly below the 4 billion shares traded on an average day.