U.S. stock benchmarks slumped on Friday as stock and commodity markets plunged, after scientists detected a new COVID variant in South Africa that could be to blame for a recent sharp surge in cases, especially in Europe.
Investors are returning to an abbreviated session after U.S. markets were closed for Thanksgiving on Thursday. Equity markets close at 1 p.m. Eastern Time on Friday, three hours earlier than usual, and bond market trading ends at 2 p.m., an hour earlier than is typical.
How are stock-index futures trading?
The S&P 500
SPX
fell 106 points, or 2.3%, to 4,594.
The Dow Jones Industrial Average
DJIA
slumped 1,012 points, or 2. 8%, to around 34,787, putting the benchmark on track to post the worst daily drop since June 11, 2020, according to FactSet data.
The decline for the Dow put it at risk of closing below its 50-day moving average at 35,261.93 for the first time since Oct. 14.
The Nasdaq Composite Index COMP declined 353 points, or 2.2%, to around 15,490.
The decline for the S&P 500, Dow and Nasdaq Composite also put them on track for their worst Black Friday performance since 1950.
On Wednesday, the Dow industrials
DJIA
fell 9.42 points to finish nearly flat at 35,804.38. The S&P 500
SPX
slipped 0.2% to close at 4,701.46, just 0.1% below its Nov. 18 record close of 4,704.54, according to Dow Jones Market Data. The Nasdaq Composite Index
COMP
rose 0.4% to 15,84.23.
What’s driving the market?
The discovery of the new COVID variant was announced on Friday by South Africa’s health minister Joe Phaahla. He said scientists were concerned because of its high number of mutations and the dramatic surge in infections the country had seen over the past four or five days.
“The pandemic and COVID variants remain one of the biggest risks to markets, and are likely to continue to inject volatility over the next year(s),” wrote Keith Lerner, co-chief investment officer and chief market strategist at Truist Advisory Services, in a Friday note. “It’s hard to say at this point how lasting or impactful this latest variant will be for markets,” the strategist wrote.
Speaking at an online news conference, South Africa’s Phaala said the variant, known as B.1.1.529 and expected to be called the Nu variant by the World Health Organization, had also been detected in Botswana and Hong Kong in travelers who had visited South Africa, he said. The WHO’s technical working group is holding an emergency meeting on Friday to assess the variant, as scientists aren’t sure whether is more deadly or just more contagious.
“The one bull in the China shop that could truly derail the global recovery has always been a new strain of Covid-19 that swept the world and caused the reimposition of mass social retractions,” said Jeffrey Halley, senior market analyst, at OANDA, in a note. “All we know so far is the B.1.1.529 is heavily mutated but markets are taking no chances.”
“Just when you thought Covid was being controlled in a holiday shortened week,” said Sam Stovall, chief investment strategist at CFRA Research, in emailed comments.
“‘It makes sense to have a market significant correction given the high level of uncertainty.’”
— Jay Hatfield, CEO and portfolio manager at Infrastructure Capital Management
The holiday-shortened schedule for markets is likely to stoke volatility, Stovall said, while he didn’t necessarily view this period as a buying opportunity for speculative investors due to uncertainties around the new strain of coronavirus.
“Doesn’t look like it will be a ‘buy the dip’ day. The severity of the South African variant will take days/weeks to assess,” Stovall wrote.
Investors are returning from the Thanksgiving break to a shortened session for U.S. markets, which is often accompanied by thinner volumes as traders often wait until Monday to return. There is no U.S. economic data on the calendar for Friday.
After new cases stabilized at 200 a day, South Africa reported more than 1,200 on Wednesday and 2,465 on Thursday. Scientists and health officials are concerned that such a highly mutating variant could escape vaccines. The U.K. government is banning flights from the country along with five other African nations, effective Friday.
As stocks in Asia slumped overnight, with the Nikkei 225 index
JP:NIK
falling an outsize 2.5%, investors flocked to perceived safer assets such as gold
GC00
GCZ21,
which jumped $25 to $1,810.50, as well as the Japanese yen
USDJPY
and government bonds. The yield
BX:TMUBMUSD10Y
on the 10-year U.S. Treasury slid 12 basis points to 1.52%.
U.S. crude oil prices
CL00
CLF22
slumped almost 8% to $72.26 a barrel on fears of falling demand if fresh restrictions on business and consumer activity are imposed amid the new variant.
“Predictably, energy, travel related and financials are the leading decliners and treasuries are rallying,” wrote Jay Hatfield, CEO and portfolio manager at Infrastructure Capital Management, in emailed comments on Friday.
“It makes sense to have a market significant correction given the high level of uncertainty,” the money manager wrote.
“At this stage very little is known,” Deutsche Bank strategists, led by Jim Reid, told clients in a note. “Mutations are often less severe so we shouldn’t jump to conclusions but there is clearly a lot of concern about this one. Also South Africa is one of the world leaders in sequencing so we are more likely to see this sort of news originate from there than many countries. Suffice to say at this stage no one in markets will have any idea which way this will go.”
Fear of a new variant was overshadowing the U.S. Black Friday shopping day, which puts the focus on retailers as consumers shop for bargains.
Which companies are in focus?
Drugmaker stocks were on the rise, including Pfizer PFE advanced by 5.6%, and Moderna MRNA stock rallied 17%.
Travel-related stocks were on the backfoot: Expedia EXPE fell nearly 9%
Shares of airliners and cruise ships Delta Air Lines DAL, Norwegian Cruise NCLH and Royal Caribbean RCL, -0.63% shares slid 10%, United Airlines UAL declined 9%, Southwest Airlines LUV shares dropped 4.6%, American Airlines’s AAL stock slumped 7.4%.
Meanwhile, shares of companies associated with the stay-at-home trade were set to rise, including Netflix NFLX rose 1.7% and Peloton Interactive Inc.
PTON
advanced 3.4%, while Zoom Video Communications Inc. shares
ZM
rallied over 8%.
How are other markets faring?
The 10-year Treasury note TMUBMUSD10Y retreated by 10 basis points to ell to around 1.54%, versus 1.644% on Wednesday at 3 p.m. ET. The bond market was closed on Thursday in observance of U.S. Thanksgiving.
The ICE U.S. Dollar Index DXY, a measure of the currency against a basket of six major rivals, was down 0.5%.
Gold futures for December delivery GCZ21 rose less than 1.1% to trade at $1,802.30 an ounce. U.S. oil futures CLF22 traded off 5.7% at around $73.99 a barrel.
The Stoxx Europe 600 SXXP traded 2.9% lower, and London’s FTSE 100 index UKX also gave up 2.9%.
In Asia, the Shanghai Composite SHCOMP finished off 0.5% higher, while the Hang Seng Index HSI lost 2.7% in Hong Kong. China’s CSI 300 000300 declined 0.7% and Japan’s Nikkei 225 NIK declined 2.5%.
