Stocks rebounded on Monday following a major sell-off to end last week spurred by concerns about the Covid omicron variant.
The Dow Jones Industrial Average gained 150 points, or roughly 0.5%. The S&P 500 added 1%. The tech-focused Nasdaq Composite rose about 1.3%, helped by a 6% jump in Twitter‘s stock. The small-cap benchmark Russell 2000, full of the most economically sensitive stocks, rallied 1%.
Stocks are coming off a holiday-shortened session Friday in which the Dow posted its worst day since October 2020. The Dow was down 905 points, or 2.5%. The S&P 500 tumbled 2.3% and the Nasdaq Composite slipped 2.2%. The three major indexes were negative for the week.
“Last Friday’s market retreat could be a typical overreaction under thin liquidity amid the holiday season,” said Francis Geeseok Oh, managing director at Qraft AI ETFs. “Markets — after experiencing covid-19 — have shown the tendency of the shortened cycle of hiccups and recovery.”
Stocks that were the hardest hit on Friday were rebounding the most on Monday.
Travel related names were up across the board. Carnival Corp. and Norwegian Cruise Lines were up more than 5% apiece. Royal Caribbean popped 6.5%. Airline stocks also charged higher with United Airlines up 3%, and Delta Air Lines and American Airlines gaining about 1% each. Online travel booker Booking Holdings rose 2%.
“We would be aggressive buyers of this pullback,” wrote Fundstrat’s Tom Lee in a note to clients Sunday night. “As with the case for Beta and Delta variants, the ‘bark’ has proven worse than the bite in each of those precedent instances. The market carnage, in our view, will be short-lived and transitory.”
Merck was the largest drag on the Dow, dropping more than 3% after Citi downgraded the stock to neutral from buy, saying in a note to clients that development struggles for the company’s HIV drug was taking a bite out of Merck’s long-term potential.
The World Health Organization on Friday labeled the omicron strain a “variant of concern.” While scientists continue to research the variant, omicron’s large number of mutations has raised alarm. Preliminary evidence suggests the strain has an increased risk of reinfection, according to the WHO. The variant was first reported to the WHO from South Africa and has been found in the U.K., Israel, Belgium, the Netherlands, Germany, Italy, Australia and Hong Kong, but not yet in the U.S. Many countries, including the U.S., moved to restrict travel from southern Africa.
The South African doctor who first raised the alarm over the new variant told the BBC that patients had “extremely mild” symptoms though it was too early to determine how omicron behaves before it is studied closely.
“While it is too early to have definitive data, early reported data suggest that the Omicron virus causes ‘mild to moderate’ symptoms (less severity) and is more transmissible,” Bill Ackman of Pershing Square Capital Management tweeted Sunday evening. “If this turns out to be true, this is bullish not bearish for markets.”
The 10-year Treasury yield rebounded back above 1.5% after a flight to safety Friday sent investors scrambling into bonds and rates lower (Prices move inversely to yields). Bank stocks gained on the rebound in yields. Bank of America rose 1.3%, Wells Fargo was up 1.3% and PNC Financial added 1.2%.
One stock that continued its Friday trend was Moderna. The vaccine maker’s stock was up another 11% on Monday after jumping 20% on Friday.
Vaccine makers have announced measures to investigate omicron with testing already underway. While it remains to be seen how omicron responds to current vaccines or whether new formulations are required, Moderna’s Chief Medical Officer Paul Burton said Sunday the vaccine maker could roll out a reformulated vaccine against the omicron variant early next year.
Wall Street’s fear gauge — the CBOE volatility index — was retreating again Monday after a 10-point spike on Friday. UBS looked at the last 17 times since 1990 when the VIX surged 10 points in a single day and found markets tended to snap back in the subsequent trading days. The S&P 500 was higher by 2.5%, on average, the next trading day and 1.6% higher, on average, over the next week, UBS found.
On top of Covid developments, investors are also anticipating key economic data released this week.
The November jobs report on Friday is expected to show solid jobs growth. Economists surveyed by Dow Jones expect 581,000 jobs added in November.