U.S. stocks plunged on Friday, with global markets rattled by a new coronavirus variant discovered in South Africa, which fanned concerns that new growth-crushing lockdowns could be imposed if the variant spreads widely.
Trading volumes were low due to the Thanksgiving holiday in the U.S., which may have exacerbated the volatility.
However, major benchmarks fell sharply during the holiday-shortened session, with the Dow (^DJI) diving by more than 900 points — logging its worst day of the year and its third worst Thanksgiving selloff ever. Meanwhile, S&P 500 (^GSPC) sank by over 2%, its biggest drop since February, and the Nasdaq (^IXIC) also fell sharply, but its losses were partly contained by a rally in stay-at-home stocks.
A new coronavirus variant has been discovered in South Africa, leading to an emergency session of the World Health Organization. Dubbed "Omicron," scientists say the new B.1.1.529 strain is a concern, because it harbors a large number of mutations found in other variants — including the fast-spreading Delta variant that exploded over much of the summer — and it seems to be rapidly spreading.
While there's no evidence yet, health officials are worried that the mutating variant could dilute or resist the efficacy of vaccines.
"It goes without saying that it’s still too early to say exactly how big a threat the new B.1.1.529 strain poses to the global economy," Neil Shearing, Group Chief Economist at Capital Economics, said in a note.
Still, "the lesson from the past couple of years is that it’s the restrictions that are imposed in response to the virus – rather than the virus itself – that causes the bulk of the economic damage. So, the key question is how governments will respond in the event that the B.1.1.529 strain spreads," Shearling wrote.
"That in turn will hinge on the extent to which it escapes the vaccines and, importantly, causes strains in national healthcare systems," he added — underscoring that governments in the U.S. and U.K. had taken a "learn to live with the virus" approach, and thus are far less likely than other regions to impose new restrictions.
BioNTech (BNTX) said on Friday it expects more data on the new coronavirus variant in South Africa within two weeks to help its shots should be reworked, and that the company and Pfizer (PFE) — its vaccine partner — could redesign its vaccine within 6 weeks, with an aim to distribute it within 100 days.
Pfizer surged as much as 8% to record, signaling that the new variant could create demand for the vaccine.
While fears of COVID-19 dominated investors' attention for much of 2020 and 2021, Pfizer confirms it could make variant vaccine in 100 days with the ability to make four billion doses in the first 12 months, according to Citi analyst Andrew Baum.
Travel and leisure-related stocks were among those hit the hardest early Friday, with Carnival Corp (CCL) and Royal Caribbean (RCL) down by 10% in premarket trading. United Airlines (UAL), Delta Air Lines (DAL) and American Airlines were down each 7% each. Boeing slipped 6%. Marriott International and Hilton Worldwide fell more than 5%.
Oil prices also swooned to the lowest levels in more than two months Friday sparking fears about a slowdown in demand.
U.S. oil dropped 10% its the worst day since April 2020, with U.S. crude futures down 6.2% to $73.57 per barrel on perceived fears of falling demand amid the new variant.
Bond yields have also fallen as the market's inflation fears temporarily gave way to the desire for safe-haven assets. The yield on the benchmark 10-year U.S. Treasury note was down to 1.53% after closing at 1.63% on Wednesday.
"We're still in a place where yields are so low that the safe haven of bonds isn't as safe as it looks," ProShares' Simeon Hyman told Yahoo Finance Live on Friday. "You're making not that much today on that little bit of rally in treasuries, so it's a tough spot."
Banks, which benefit from the higher interest rates, were broadly weaker as bond yields declined. Bank of America sinks 5.8%, Wells Fargo drops 6.3%, Citigroup loses 4.8%, JPMorgan declines 4.7%, Goldman Sachs sheds 3.9% and Morgan Stanley tumbled 4.9%
1:00 p.m. ET: Stocks slump on Black Friday, as new variant spooks investors
Here were the main moves in markets as of 1:00 p.m. ET:
S&P 500 (^GSPC): -106.65 (-2.27%) to 4,594.81
Dow (^DJI): -903.59 (-2.52%) to 34,900.79
Nasdaq (^IXIC): -353.57 (-2.23%) to 15,491.66
Crude (CL=F): +$9.73 (-12.41%) to $68.66 a barrel
Gold (GC=F): -$1.10 (-0.06%) to $1,785.40 per ounce
10-year Treasury (^TNX): -1.4 bps to yield 1.54%
11:15 a.m. ET: Carnival, travel slumps on fears of South African Covid variant
11:10 a.m. ET: Stocks slump midday
Here's where markets were trading midday:
S&P 500 (^GSPC): -93.46 (-1.99%) to 4,608.00
Dow (^DJI): -913.69 (-2.55%) to 34,890.69
Nasdaq (^IXIC): -318.08 (-2.02%) to 15,523.46
Crude (CL=F): -$9.24 (-11.79%) to $69.15 a barrel
Gold (GC=F): $13.30 (0.75%) to $1,797.60 per ounce
10-year Treasury (^TNX): -1.49 bps to yield 1.5%
10:30 a.m. ET: The end of the interest rate differential play?
Friday's decidedly risk-off tone is calling into question the level of aggressiveness with which the Federal Reserve may pull back on its stimulus. Only a day ago, some thought the rapid surge in prices could prompt the Fed to speed up a taper — or even hike rates faster.
What a difference a day makes. Marc Chandler at Bannockburn Global FX, pointed out in a research note that the rise of a new variant is scrambling Fed expectations versus the European Central Bank and the Bank of Japan:
The dollar's rally has been fueled by the prospect of a divergence of monetary policy that favored the Fed over the ECB and BOJ. Indeed, since the November 10 surprise jump in the October CPI to above 6%, we had emphasized the likelihood that the Fed would have to taper quicker to give it the flexibility to lift rates earlier if needed. Since then, 4-5 Fed officials and several large banks have also underscored this possibility. However, this scenario is being called into question today, which is evident in the swaps markets and the Fed funds futures.
9:30 a.m. ET: Stocks open sink
Here's where markets were trading just before the opening bell:
S&P 500 (^GSPC): -66.85 (-1.42%) to 4,634.61
Dow (^DJI): -848.78 (-2.37%) to 34,955.60
Nasdaq (^IXIC): -133.91 (-0.83%) to 15,708.01
Crude (CL=F): -$5.34 (-6.81%) to $73.05 a barrel
Gold (GC=F): $21.20 (1.19%) to $1,805.50 per ounce
10-year Treasury (^TNX): -1.52 bps to yield 1.5%
7:55 a.m. ET Friday: Stock futures tumble
Here's where markets were trading Friday morning: