(Bloomberg) — Just as buyers had been wrapping up this year’s investing, the danger of new lockdowns sent shock waves by marketplaces across the planet.
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Sentiment in shares and bonds remained on the back again foot, while U.S. stock index futures and 10-year Treasury yields pared declines soon after Moderna Inc. mentioned a 3rd dose of its Covid-19 vaccine elevated antibody ranges against the omicron variant.
Lockdown hazards are increasing, with the U.K. Overall health Secretary Sajid Javid refusing to rule out more powerful actions in advance of Xmas and the Netherlands said Saturday it’s heading to a full lockdown until finally at minimum Jan. 14. Senator Joe Manchin’s rejection of the U.S. expending offer at the heart of President Joe Biden’s financial agenda also weighed on sentiment.
“The marketplace is reducing its anticipations for expansion owing to omicron and reduced liquidity as the year is ending is likely amplifying the moves, so we have to be a bit very careful of looking at also substantially into the weakness,” reported Peter Garnry, head of equity tactic at Saxo Lender.
Volatility Jumps
Volatility surged, with the Euro Stoxx 50 Volatility VSTOXX Index and the VIX Index the two leaping to the best in two months.
S&P 500 e-mini futures fell 1.2{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} as of 8:01 a.m. in New York, immediately after earlier sliding as a lot as 1.8{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996}. The Stoxx Europe 600 Index trimmed previously declines to 1.5{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996}.
“I continue to be constructive for 2022, provided a health and fitness predicament that appears to be under control, with admittedly higher transmissibility but gentle signs an setting of fascination premiums expanding but nonetheless contained, as perfectly as an inflation that looks beneath management,” explained Michel Keusch, a portfolio manager at Bellevue Asset Management. “I would not offer in this environment.”
Yields on 10-year Treasuries traded at 1.38{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996}, paring declines to two basis points. Danger-sensitive currencies underperformed, with the New Zealand and Canadian bucks top losses in the Group of 10.
“The selloff is affected by calendar year-stop volatility and new fears on progress because of to the omicron variant,” stated Antonio Amendola, a portfolio supervisor at AcomeA Sgr. “That mentioned, we require to remain selective on tales with increased solidity and capacity to maintain margins in inflationary contexts. At the relative degree, little and mid caps are improved than massive caps.”
‘Very Jittery’
Morgan Stanley strategists led by Michael Wilson advised that U.S. inventory buyers keep defensive, and even though omicron adds to financial considerations, they are additional targeted on dangers of source finding up while usage fades.
“The industry is pretty jittery and certainly the news move on omicron is not excellent,” said Charles Diebel, a funds manager at Mediolanum. “But I’m not certain the affect will very last as well extended. I imagine the mix of bacterial infections and boosters indicates this abates fairly speedily, i.e. by February, so I wouldn’t be purchasing bonds on the again of it.”
Goldman Sachs Team Inc. reduce its forecast for U.S. economic advancement in the wake of Manchin’s transfer from the Biden administration’s roughly $2 trillion tax-and-expend method. Goldman slashed its actual gross domestic merchandise projection for the very first quarter to 2{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} from 3{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} formerly.
The backdrop of financial-stimulus tapering in big economies is also incorporating to trouble for creating-country property.
The removing of accommodative financial coverage by a lot of major central financial institutions “will strike emerging marketplaces hard”, together with other threat assets that are dependent on abundant liquidity, in accordance to Acquire Slim, world wide head of forex system at Brown Brothers Harriman & Co. “EM is most likely to continue being underneath strain as we go into 2022.”
Emerging Marketplaces
Each building-sector forex other than the yuan has weakened towards the dollar in excess of the previous six months. The Turkish lira, which has been beneath tension after President Recep Erdogan flagged an economic product that depends on decreased borrowing expenditures, slid to an all-time low on Monday.
In stocks, the MSCI Rising Markets Index has slid extra than 7{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} this calendar year and was down 1.9{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} right now.
On Friday, the S&P 500 gauge prolonged its weekly slide in a session of large investing quantity. With the vacations rapidly approaching, it could have been the very last day of 2021 with adequate liquidity for investors to trade in and out of substantial positions.
“Unless we see this flow change all around then it feels like we could be at the mercy of situation squaring, fairly than chasing, and longs having some off the desk in advance of the calendar year-conclusion,” Chris Weston, head of study with Pepperstone Economic Pty Ltd., wrote in a notice to clients.
No person tells Silicon Valley and Wall Avenue bigwigs what to do — besides, of training course, the rapidly-spreading Covid-19 omicron variant.
Mere months in the past, corporate The usa was on the lookout ahead to 2022 as the time when ultimately, belatedly, the place of work would go back to ordinary. Now, all those strategies are scrambled, and human means specialists say the setback is still a further blow for executives who tried using to undertaking decisiveness in the facial area of a speedily evolving risk and beleaguered personnel alike.
“Employers are now acknowledging it’s not possible to return staff members through yet an additional surge in the an infection,” said Dr. Neal Mills, main clinical officer at consulting services enterprise Aon.
It really is a further blow for executives who experimented with to job decisiveness in the facial area of a swiftly evolving wellbeing risk. 
The bounce in scenarios now is acquiring an effect in some areas: Foodie blog Eater NY counted 12 New York City dining places that have declared temporary closures as situations increase, with owners citing a require to guard their staffers and patrons.
Omicron compelled tech titans to retreat: Google father or mother Alphabet and Apple both abandoned timelines that would have brought personnel back again to workplaces in January and February, respectively.
Quite a few boldface names in the entire world of finance have also backed off in-business perform. Citigroup explained staff members in the New York City metro space can perform from residence by means of the holiday seasons, in accordance to Bloomberg. Citi has a great deal of company: Bloomberg also mentioned investment bank Jefferies Money Group, hedge fund Citadel, alongside with asset administration giants Blackstone and Carlyle Team, all issued directives allowing workers to work remotely when once more.
On Saturday, CNN introduced that its workplaces would be shut to all personnel who careers did not have to have them to be there. The NBC Common Information Group, which includes NBC News, MSNBC, and CNBC, emailed its staff members on Sunday to say that all workers who can do the job from property should do so right until further more detect.
It’s an awkward place for quite a few of these organizations to be in, since a lot of experienced been vocal about their desire to see men and women back again in the workplace. In an interview with CNBC, Morgan Stanley CEO James Gorman — who had earlier pushed for a Labor Day return to the workplace — admitted, “I was wrong on this.” He predicted that the current keeping sample could extend effectively into 2022, declaring, “everybody’s even now getting their way.”
A the latest survey of CFOs carried out by consulting company Deloitte found that 88 per cent assume hybrid get the job done to be a fixture at their organization in the future year. Steve Gallucci, Deloitte’s North The us chief of the CFO system, mentioned it was a tacit acknowledgment that even the most effective-laid programs are no match for a pandemic.
“They’re recognizing that for many industries, a hybrid technique is really desirable to each the staff and the employer,” Gallucci explained.
“The most important worries came from individuals that ended up the most optimistic” in scheduling their return to the business office, Mills claimed. The prospect of another setback is yet another blow to the presently sapped morale of workers. “There has been some decline of self esteem from personnel,” he mentioned.
Johnny C. Taylor, Jr., president and CEO of the Society for Human Source Administration, claimed providers whose prime brass had been vocal about their distaste for doing work from dwelling have been remaining in a tricky location as a end result.
“When you announce that you are heading to drive off the return to get the job done, there is a tacit acknowledgement that you’re heading to be impacted negatively as a business,” Taylor reported.
There is also appreciable uncertainty on the vaccine entrance, with no clear solutions about how vaccine mandates — or deficiency thereof — will effect people’s willingness to re-interact in a common business office placing. SHRM identified in a November survey that 51 per cent of companies with workforces of more than 100, which would be subject matter to President Joe Biden’s federal vaccine mandate, are ready right up until authorized issues to the mandate are settled. Three-quarters of study respondents explained that if the directive does not keep up in court, they are not likely to impose their possess vaccine or testing specifications.
Deloitte’s CFO survey turned up related findings, with 52 percent of respondents anticipating vaccine demands for workers performing on-site.
The cumulative influence is a single of exhaustion. In a recent survey, Taylor explained, “One in four workforce have stated they’re experience isolated, depressed and a minimal hopeless simply because of the have to have for human interaction, and that’s participating in alone out in the office from a mental wellbeing and wellness point of view.”
One in 4 employees have claimed they are emotion a tiny hopeless mainly because of the will need for human conversation.
“There is undoubtedly Covid fatigue. Omicron is just introducing to that all round emotion,” HR specialist Artwork Glover mentioned by using electronic mail. “It seems to be a single extended, continuous slog by means of this pandemic, with the ongoing threats of an infection ebbing and elevating.”
Despite the press on the portion of CEOs to carry personnel again into the office, numerous individuals have recognized they can be far more successful from working at property — an unintended consequence that has benefitted providers experiencing climbing payroll fees in a limited labor current market. This could backfire, while: The extra efficiency that arrives when people today are operating from property can promptly turn into as well much of a great thing if it triggers employee burnout or departures, Taylor reported.
“It results in a serious tension. On a single hand, we as employers know excellent productiveness is very good,” he claimed. “But if they come to be significantly less successful and successful in excess of time, then you’ve shot on your own in the foot.”
Stock futures opened relatively flat on Wednesday evening, though sustaining gains posted by a three-day recovery rally that was led by cooled investor concerns around the Omicron variant.
Dow futures inched up 0.02{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996}, while contracts on the tech-focused Nasdaq Composite ticked up 0.10{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996}. All major indexes closed up, with the S&P 500 gaining 14.46 points to close the session at 4,701.21, just 0.5{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} shy of the trading session on Nov. 24, a day before the latest COVID-19 variant was announced by the World Health Organization.
The moves were supported by eased virus fears after Pfizer Inc. and BioNTech reported that early lab studies show a third dose of their coronavirus vaccine mitigates the Omicron variant. The vaccine makers had indicated the initial two doses may not be enough to protect against infection from Omicron. Shares of Pfizer (PFE) traded 0.62{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} lower on Wednesday, closing at $51.40.
“We do think that there is fundamental support there for markets to continue to move higher here,” Emily Roland, co-chief investment strategist at John Hancock investment management, told Yahoo Finance Live on Tuesday. “Obviously we had a couple of things spook us over the last week or so, the emergence of the Omicron variant as well as this pivot from the Fed, potentially seeing them accelerating their tapering of asset purchases here. But the bottom line is that the economy is strong.”
With virus concerns diminishing, investors are pivoting their attention back to economic data, awaiting Consumer Price Index (CPI) figures on Friday to assess the extent inflationary pressures will persist.
“If the Omicron variant was to lead to a resurgence in goods spending at the expense of services or to further complicate supply disruptions, there could be a clear inflationary impact, too,” HSBC economist James Pomeroy wrote earlier this week in a research note to clients. “The inflation news in the past few weeks has been decidedly mixed — with upside surprises in both the U.S. and eurozone being offset by the possibility of some of the supply chain issues starting to alleviate, while energy prices have fallen sharply in recent days.
Separately, Apple shares rose 2.3{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} closing at $175.08 Wednesday — hitting a third-consecutive record high. The iPhone maker is on the cusp of becoming a $3 trillion company. The milestone would be reached at a time when the company is expected to foray into augmented and virtual reality with the launch of headsets in 2022.
6:57 p.m. ET Wednesday: Stock futures flat
Here were the main moves in markets in late trading on Wednesday:
S&P 500futures (ES=F): -1.75 points (-0.04{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996}), to 4,697.25
Dow futures (YM=F): + -8 points (-0.02{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996}), to 35,728
Nasdaq futures (NQ=F): -16.50 points (-0.10{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996}) to 16,375.75
—
Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc
As stock market investors have learned over the past week, it’s tricky to time the next move in the Dow Jones Industrial Average after a big selloff. Buyers stepped in Monday after the 900-point Nov. 26 dive, but there were signs of weakness. Stocks tanked Tuesday, soared back Wednesday before whipsawing into the close, and then had a huge day on Thursday before ending the week’s trading with another loss for the Dow.
“Always tricky,” says Keith Lerner, co-chief investment officer and chief market strategist at Truist.
Looking to market history can help.
Some are betting on the Santa Claus rally for a big December, even as clarity on the omicron variant threat remains lacking and cases spread, including in the U.S. And even after a week in which Fed Chair Jerome Powell surprised the market — with timing that was “curious,” according to Mohamed El-Erian — saying the Fed’s taper may be accelerated and inflation should no longer be described as “transitory.”
Traders work in the S&P 500 options pit at Cboe Global Markets Inc. in Chicago, Illinois.
Daniel Acker | Bloomberg | Getty Images
Lerner is looking to market history, and he sees an environment in which the patient investors will be ahead, if not in December, a year from now.
“We want at least a 12-month trend, because even if your entry point is not exactly right, you have greater chances of success in that timeframe,” he said.
The “Black Friday” Nov. 26 spike in the VIX volatility index of 54{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} was among the five biggest single-day volatility moves in the past three decades. Since 1990, there have been 19 trading sessions during which the VIX spiked by 40{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} or more. In 18 of those 19 instances, or 95{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} of the time, the S&P 500 Index was higher one-year later, and the gains were large — an average of 20{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996}.
With the U.S. market still up more than 20{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} this year even after the recent volatility, another 20{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} might be aspirational. Lerner noted that before the recent market whipsaw, stocks had gained 9{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} since early October, and that is a negative as far as having confidence the market will move up substantially in the short-term. That implies the immediate future is “vulnerable” to more moves down.
But the more important data point is the longer-term trend in the VIX history: there isn’t any instance across the 19 biggest VIX spikes of the past three decades after which stocks weren’t positive a majority of the time one month, three months, six months, and one year later. One month later, stocks were only up an average of 1{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996}, but were positive 70{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} of the time, and the numbers get better with time.
The caveat: Covid is a type of risk that the markets have not seen often over the past three decades, and two of the biggest VIX spikes came as Covid first hit the U.S. in February 2020. After both, the one-month period for stocks was brutal. That implies a market that remains on edge for now, and that should not come as a surprise — especially after the past week of trading. But the only of the 19 instances in which stocks were still down a year later was at the onset of the financial crisis. That data point gives Lerner more confidence in remaining bullish.
Volatility will remain the headline before the dominant trend returns, but that trend, he says, will be an economy that continues to expand and support further stock gains.
“In the last decade, we’ve had these V-shaped recoveries. They have been more normal,” he said. “Go back to the pandemic low, when you had a sharp move down and you get a kick back rally and a battle between greed and fear ensues. But in general, over the last 5 to 10 years, we’ve seen more of these come-down and go-back-up markets, as if nothing happened,” he added.
The last time was the end of September when the financial issues at Chinese property giant Evergrande sent the global equity markets into a tailspin.
Fear of missing out in a Covid market
The base case, Lerner says, is more of a tug-of-war until more of the news filters out and the market is able to get a better gauge on this new variant. This doesn’t change his view that investors are more likely to be rewarded by sitting tight rather than sitting out the market. In a “fear of missing out” era, that’s a lesson many investors learned from Spring 2020, the fastest bull market in history based on S&P 500 price gains.
“For people who missed out that time, it is a reminder about becoming too negative too fast,” Lerner said. “Even if you had had all the news on the pandemic, you would have been better staying in the market. By the time we have the all clear the market has moved,” he said.
The stock market was at a record shortly before Nov. 26, and when markets come off new highs, history says investors should be prepared for more downside over the next one to three months. A pandemic may heighten that volatility since the science is a type of uncertainty the market isn’t accustomed to analyzing. But the market does now have the 2020 Covid playbook to learn from.
“In February 2020, it was all new,” Lerner said. “We didn’t know how businesses would adapt, and now there is playbook. We saw they become more digital. There will be winners and losers, no matter what, but companies and consumers have adapted and will again.”
The Federal Reserve is on record as saying one of the lessons of the Covid era is that the economy has gotten better at adapting to pandemic during each successive wave. When Fed Chair Powell outlined a more hawkish position during Senate testimony this week, some market pundits pointed to the inflationary risks from an economy that is too hot as being the larger concern than a new Covid variant.
Like many market experts, Lerner says on the margins inflation may become even worse because of an exacerbation of the existing supply chain issues, which were starting to show signs of easing and now with a new variant unknown could go back up again on new factory shutdowns and delays in transportation.
“It is a risk to the market,” he said, and another reason volatility may remain elevated in the near-term.
Fed Chair Powell said this week that the omicron variant “complicates” the inflation picture.
But another difference between now and Spring 2020: the economy is not in a recession, which it quickly entered during lockdowns and stay-at-home orders during the initial Covid wave. “Now we know, even with this variant, it may slow activity down, but I still think recession risk is low. That’s a key difference from February and March 2020 when a recession happened so quickly,” Lerner said.
“Especially in the U.S. market, composition does matter,” Lerner said.
Reflation trades may ultimately benefit if omicron doesn’t turn out to be as bad as feared and the economic expansion remains on track, but “right now, the strongest sector is tech and that’s the most important sector for those investing at the index level,” he said. “If the big mega-cap tech stocks hold up, you may see the headline index hold up better and more bifurcation below the surface. The knee jerk is investors will rotate to companies that can still create a lot of cash flow and have bigger balance sheets, so if there is a slowdown, they have enough to get through. They’ve become more defensive in some ways,” he added.
This view also makes Lerner in favor of continuing a tilt to U.S. equities versus peer markets around the globe, even as international and emerging markets trade at significant discounts to U.S. stocks. He noted that international equity prices are making fresh lows relative to the U.S., and in the case of the EAFE index versus the S&P 500, a relative price that is at the lowest level in history.
The sector composition of the S&P 500 and outsize role of mega-cap is a major reason for that versus the European market and the EAFE universe, in which financial and industrials are the top two sectors. Lerner stressed that this doesn’t mean gains won’t eventually come to those who enter early into discounted overseas equities trades. In fact, he has told clients that part of sticking with a U.S. equities tilt and technology for now likely means missing the onset of an investor rotation that is inevitably going to favor overseas markets as earnings power improves, but it’s a price he is willing to pay.
“Valuations are cheap overseas but that hasn’t been a catalyst,” he said. “We will miss the turn, but we are willing to wait for stability and earning trends, and that has served us well in being overweight U.S. … If there is a sustainable move, there should be sustainable upside,” he added. “You don’t need to be a hero trying to buy those markets.”
Equity market strategists remain cautious on any sustainable bounce in the U.S., too, based on this past week’s action. Monday’s big really featured an advance/decline breakdown of 1,834 winning stocks versus 1,502 losing ones — “not a resounding up day.” Lerner said. But Thursday’s big bounce was more encouraging. Advances: 2,525. Declines: 868. “You want to see an advance-decline that is three-to-one,” Lerner said, and the market delivered that on Thursday — though that confidence didn’t last.
The Russell 2,000, a broader look at the U.S. market and domestic economy than the large-cap S&P, broke it’s four-day losing streak on Thursday, but by Friday’s close was 12{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} of its 5-week high. Lerner’s says the action in the small-cap Russell 2000 is an example of the “nice kickback but more mixed below the surface” market action investors will need to keep an eye on, and not let themselves be fooled by any “all clear” signal amid the stock nibbling and, most importantly, continued uncertainty over the course of the omicron variant.
The market had its best day since March 2021 on Thursday, but strategists remain wary. Tom Lee’s Fundstrat Global Advisors, which called for “aggressive buying” early in the week, said after both the Monday and Thursday rallies that the market wasn’t sending an all-clear signal.
According to Bank of America and FactSet Research Systems, headed into Friday’s trading action only 32 S&P 500 stocks were off their highs less than the S&P 500 Index.
“Thursday’s rally, similar to Wednesday’s bounce, failed to show sufficient strength to think a low is in,” Fundstrat Global Advisors wrote to clients on Thursday night. “This rally could still weaken further into next week. … Given the extreme drop off in breadth in recent weeks, a monumental effort is necessary along with broad-based participation to have confidence.”
On Friday, the S&P 500 barely avoided its sixth-consecutive trading session with a move of 1{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} or more, declining by 0.8{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996}.
Lerner pointed out in a note to clients last Thursday that the percentage of retail investors with a bullish view has dropped to just 27{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} versus 48{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} a few weeks ago, according to the latest survey from the American Association of Individual Investors (AAII), while the percentage of bearish investors jumped to the highest level in more than a year. He sees investor patience as being as important as confidence. Corporations and consumers have adapted to Covid, pent-up demand remains, and the economy remains on solid footing, all which leads him to that bottom-line takeaway that the primary market trend is higher, but it will likely continue to be a rocky near-term road.
While the S&P 500 is below its peak from a month ago; the ARK Innovation ETF that made fund manager Cathie Wood a star in recent years and during the pandemic: now down 40{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} from its February high and its largest pullback since the onset of the pandemic. The iShares Tech-Software ETF, which includes DocuSign, was below its 200-day moving average for the first time since May on Friday, and more than 14{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} below its intraday all-time high from November.
The one factor investors should not let set their investment course is fear. Fear in the market right now is being driven by a factor that is real, and to get to the other side of that fear can takes weeks, if not months. But fear can also rotate from a market headwind to market tailwind, and that is what the history of big spikes in the VIX index shows. “The same fear becomes the catalyst,” Lerner said.
After the “Black Friday” selloff, Lee said the lack of an inversion in the VIX, when the nearer-term risk is being priced higher than the outer risk, was a positive sign. But by this past Friday, the VIX curve had inverted, which is a sign of portfolio stress. While that “can occur near the climax of a selloff, as fear peaks,” the VIX will have to un-invert again for more confidence.
“We have to say with humility what we know and don’t know,” Lerner said, but he added that if the catalyst for the S&P being down is renewed Covid fears, and we find out these concerns are overblow and won’t disrupt the economic trajectory and won’t effect corporate profits, the headlines that had people braced for negative news become a positive catalyst for the market because expectations were reset lower.
“There are times like 2007 when investors weren’t fearful enough,” he said. “But our baseline view is that we’re not going into a recession, this doesn’t change the economic expansion materially.”
Friday’s monthly jobs report was below expectations in number of jobs added by the U.S. economy in November, but it was a mixed report, with the unemployment rate falling and labor participation rising, both encouraging signs for the economic outlook.
A “garden-variety” correction in stocks, was how S&P 500 technician Ed Yardeni described it early last week.
By Friday’s close, the Nasdaq was down more than 6{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} from its 52-week high; the off Dow over 5{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996}; and the S&P less than 5{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} from its annual high.
“5{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} to 10{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} corrections are the admission price to the market,” Lerner often says. “Investors are better served by focusing on the longer term trend.”
The stock market has been hit with a double whammy of unsavory news, explains Charles Schwab Chief Investment Officer Liz Ann Sonders.
“I think at this stage in the economic cycle and the market cycle, the move from very loose policy to tighter policy has been a factor in the volatility [we are seeing]. You add that to an environment where we started to see a tremendous amount of speculative froth and then add to that Omicron [concerns], you get the double whammy catalysts that sometimes can cause an eruption in volatility,” said Sonders on Yahoo Finance Live.
The heightened volatility reflects the one-two punch of Omicron variant concerns and surprisingly hawkish testimony to lawmakers by Federal Reserve Chairman Jerome Powell this week.
Indeed, the markets continue to endure a turbulent stretch as a result, which began with an awful 1,000-plus point loss for the Dow Jones Industrial Average on the day after Thanksgiving.
The Dow plunged 652 points in Tuesday trading, while the Nasdaq Composite and S&P 500 were also deeply in the red. All 30 Dow components were in the red for the session, except for Apple and Merck.
Tepid action persisted into Wednesday, with the Dow reversing a 520-point intraday gain to finish down 461 points. Markets were in the green by early afternoon trading Thursday, but traders remain on high alert.
Sonders is in good company with her view on the Fed injecting unknown into the markets.
“I think the risk for the market generally is how the market responds to the Federal Reserve kind of tightening up financial conditions,” Pershing Square Capital founder Bill Ackman told Yahoo Finance. “I think that’s the risk for the market.”
As for what moves one should be making in this riskier market backdrop, there continues to be a firm bull camp on Wall Street who believe buying dips is prudent.
“I think if there are certain names you have been wanting to add to your portfolio, you can use [weakness] to your advantage,” said Crossmark Global Investments Victoria Fernandez on Yahoo Finance Live. Fernandez believes the market reaction to this week’s news has been “overdone.”
Fernandez said she is buying Apple’s stock on weakness, for instance.
Bill Ackman, founder and CEO of Pershing Square Capital Management.
Adam Jeffery | CNBC
Investor Bill Ackman said the new omicron variant of the coronavirus could actually give U.S. stocks a boost if symptoms turn out to be less severe.
“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,” Ackman said in a tweet Sunday evening. “If this turns out to be true, this is bullish not bearish for markets.”
The founder and CEO of Pershing Square Capital Management added it would be bullish for the equity market and bearish for the bond market.
First detected in South Africa, the new Covid variant has now been found in more than a dozen countries, causing many to restrict travel from southern Africa. The World Health Organization labeled the omicron strain a “variant of concern” on Friday when the Dow Jones Industrial Average dropped 900 points to suffer its worst day since October 2020.
Covid symptoms linked to the omicron variant have been described as “extremely mild” by the South African doctor who first raised the alarm over the new strain.
Still, the WHO said it will take weeks to understand how the variant may affect diagnostics, therapeutics and vaccines.
Ackman’s comments have been widely watched throughout the health crisis and the market’s turbulent ride over the past two years. At the height of the Covid-19 crisis in March 2020, Ackman came on CNBC to warn investors that “hell is coming” and urged President Donald Trump and corporate America to shut down the country for 30 days to contain the outbreak, calling it the only option to rescue the economy.
Days after the interview, Ackman revealed his firm exited the short positions just as the S&P 500 bottomed, pocketing more than $2 billion in bets against markets that month.
In July when Wall Street was grappling with the Covid delta variant, Ackman said it doesn’t pose a significant threat to the economic reopening and he sees interest rates rising on the back of the big comeback.
More recently at the end of October, the hedge fund manager called for the Federal Reserve to begin reining in the support it has provided to the economy during the pandemic. He said the central bank should “taper immediately and begin raising rates as soon as possible.”
Pershing Square manages about $13 billion in assets and the hedge fund was up 27.2{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} through October and 21.6{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} net of fees, according to the company’s statements. It followed a banner 2020 during which the fund returned a whopping 70.2{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} on net.
Ackman has been betting big on a rebound in the restaurant, retail and hotel industries. His top holdings at the end of the third quarter included Lowe’s, Hilton, Restaurant Brands and Chipotle. He picked up Domino’s Pizza shares earlier this year following a pullback.
