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.
Stock futures opened higher Thursday evening to hold gains after a recovery rally, with an initial wave of concerns over the economic impacts of the Omicron variant at least temporarily easing.
Contracts on the S&P 500 advanced. The blue-chip index closed higher by 1.4{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} during the regular session, marking its biggest jump since Oct. 14 Thursday. The Dow and Nasdaq each also advanced. Volatility from earlier this week retreated, and the CBOE Volatility index (^VIX) dipped 10{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} to below 28. And travel stocks including airlines, hotel and lodging firms held onto earlier gains in late trading as traders bought the pullback in these virus-sensitive areas of the market.
The move higher in stocks on Thursday came as market participants digested recent headlines on the Omicron variant, including the discovery of multiple cases in the U.S. While vaccine-makers and epidemiologists have still been assessing the new variant’s transmissibility and severity of infection, investors have at least temporarily eased back from peak levels of concern.
“The markets … have been pricing in, really, a worst-case scenario,” Jim Smiegiel, SEI chief investment officer, told Yahoo Finance Live. “So obviously, there was a ton of uncertainty … [but] you’re seeing today some signs of positive outlooks coming into play. The cases that we’ve seen so far in the States have been mild.”
“I think the market is now switching gears a little bit and perhaps lessening the intensity on the potential for negative outcomes,” he added. “The big issue still remains more about the world government’s reaction to the variant and what that means from a lockdown perspective. And that’s what the market is still kind of struggling with at this stage.”
Others have struck an even more optimistic tone, suggesting the economic impact of the Omicron variant will ultimately prove less drastic than initially feared.
“If you look back at Delta, there really wasn’t a meaningful impact in terms of actual consumption … maybe we saw a little bit of a shift away from services in the early stages of the reopen back towards goods, but overall consumption held up just fine,” Garrett Melson, Natixis Investment Managers Solutions portfolio strategist, told Yahoo Finance Live on Thursday.
“And on the capex front, we still see signs that companies are saying they’re going to invest in their businesses and they’re doing just that,” Melson added. “Lockdowns are certainly not happening here in the U.S. There’s no appetite from the government and certainly no appetite from consumers.”
Traders are also awaiting the U.S. Labor Department’s latest monthly jobs report Friday morning. The November jobs report is expected to show another more than half a million payrolls returned last month, with the unemployment taking another step down to reach a March 2020 low of 4.5{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996}. The report comes following a slew of other positive data points on the labor market in recent days, with weekly unemployment claims coming in lower than expected, and ADP’s private payrolls report topping expectations on Wednesday.
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6:31 p.m. ET Thursday: Stock futures jump ahead of jobs report
Here were the main moves in markets during the overnight session:
S&P 500 futures (ES=F): +11.5 points (+0.25{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996}), to 4,587.25
Dow futures (YM=F): +94 points (+0.27{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996}), to 34,716.00
Nasdaq futures (NQ=F): +34.50 points (+0.22{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996}) to 16,023.00
NEW YORK, NEW YORK – AUGUST 10: People walk by the Wall Street Bull near the New York Stock Exchange (NYSE) on August 10, 2021 in New York City. Markets were up in morning trading as investors look to a rare bipartisan effort in the Senate to pass a massive infrastructure bill that, if passed, will infuse billions into the American economy. (Photo by Spencer Platt/Getty Images)
Stock futures opened higher Tuesday evening to recover some losses after a selloff earlier, when more hawkish remarks from Federal Reserve Chair Jerome Powell compounded with lingering uncertainty around the Omicron variant and its impacts on the economy.
Contracts on the S&P 500 rose after the index closed lower by nearly 2{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} Tuesday afternoon. The S&P 500 closed out November with a monthly drop of 0.8{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996}, with volatility over the past week wiping out prior gains following the discovery of the Omicron variant. Still, the S&P 500 remained higher by nearly 22{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} for the year-to-date through Tuesday’s close.
The Dow underperformed during the month, dropping 3.7{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} in November, while the Nasdaq eked out a monthly gain of 0.3{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996}.
Some stocks, however, performed more strongly. Pfizer (PFE) shares closed out their best month since 1991 in November, jumping 23{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} as investors, faced with the new coronavirus variant, turned to vaccine-makers’ shares. Moderna (MRNA) shares rose 2{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} in November, though remarks from its CEO Stephane Bancel to the Financial Times saying that the company’s current COVID-19 vaccine would likely see a “material drop” in effectiveness against the Omicron variant sent the stock sharply lower during Tuesday’s session.
This commentary, as well as ongoing uncertainty over the transmissibility and severity of disease caused by the new variant, also contributed to the broader market drop on Tuesday.
“The market doesn’t like an information vacuum, and now we have two,” Thomas Hayes, Great Hill Capital Chairman, told Yahoo Finance Live. “Not only did we have the CEO of Moderna expressing concern that his vaccines may not have full coverage for Omicron, but then you had Powell throw this … wrench into the mix at the hearing saying that maybe we’ll speed up taper by a few months. That’s no small potatoes for sure, because the market had anticipated over six or seven months that we would get another $660 billion of liquidity.”
Namely, Powell told the Senate Banking Committee that it would be appropriate for the central bank to consider completing its asset-purchase tapering process “a few months sooner” than previously telegraphed. Market participants had been anticipating that the Fed might strike a more supportive stance for longer especially given concerns over the latest coronavirus variant. But instead, Powell suggested his priority was on curbing persistently elevated levels of inflation, and the Fed chair added it was “probably a good time retire” his description of inflation as “transitory.”
“Chairman Powell’s commentary course-corrected the view on inflation and the potential need for quicker policy adjustment,” Charlie Ripley, senior investment strategist for Allianz Investment Management, wrote in an email. “The reality is hotter inflation coupled with a strong economic backdrop could end the Fed’s bond buying program as early as the first quarter of next year.”
“Ultimately, the transitory view on inflation has officially come to an end as Powell’s comments reinforced the notion that elevated prices are likely to persist well into next year,” he added. “With potential changes in policy on the horizon, market participants should expect additional market volatility in this uncharted territory.”
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6:15 p.m. ET Tuesday: Stock futures rebound
Here were the main moves in markets as the overnight session kicked off:
S&P 500 futures (ES=F): +22.25 points (+0.49{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996}), to 4,588.5
Dow futures (YM=F): +92 points (+0.27{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996}), to 34,549.00
Nasdaq futures (NQ=F): +93 points (+0.58{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996}) to 16,243.5
NEW YORK, NEW YORK – NOVEMBER 29: A trader works on the floor of the New York Stock Exchange (NYSE) at the start of trading on Monday following Friday’s steep decline in global stocks over fears of the new omicron Covid variant discovered in South Africa on November 29, 2021 in New York City. Stocks surged in morning trading as investors get more data on the new variant and reports that symptoms have so far been mild for those who have contracted it. (Photo by Spencer Platt/Getty Images)
Stock futures opened higher on Monday to hold onto gains after a recovery rally, with investors at least temporarily shaking off concerns over a new coronavirus variant and looking ahead to new market catalysts.
Contracts on the S&P 500, Dow and Nasdaq rose. Each of the three major indexes had ended the regular trading day solidly in the green, with technology stocks leading the way higher and helping pull the Nasdaq up by nearly 2{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996}.
Investors were heartened by remarks from the White House, when President Joe Biden said the newly discovered Omicron coronavirus variant was “not a cause for panic.” Biden said he intended to announce on Thursday the White House’s strategy for addressing coronavirus this winter, and that this plan would not include lockdowns, but would instead emphasize vaccinations, boosters and testing. The Centers for Disease Control and Prevention (CDC) on Monday updated its guidance to say all individuals aged 18 and older “should” get a booster coronavirus vaccine, strengthening this from previous language primarily aimed at getting those considered most at risk an additional dose of the shots.
Prospects that widespread lockdowns would likely not come to the U.S. in the face of the latest variant helped fuel a broad risk-on rally on Monday. This came in sharp contrast with Friday’s moves immediately following the World Health Organization’s announcement of Omicron as a “variant of concern,” which sparked the Dow’s worst plunge since Oct. 2020.
“This is not a repeat of March 2020,” Paul Schatz, Heritage Capital President, told Yahoo Finance Live on Monday. “This looks nothing like March of 2020, yet it’s so recent in our history, people immediately think, ‘Omicron is here, oh my gosh this is going to be a 30{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} decline, we’re going to go straight down’ … You need to equally weigh history, not weigh it based on how recent it was in your memory.”
Still, the sectors and individual stocks that outperformed on Monday were largely technology names, which have served as defensive trades throughout the pandemic as investors bet on more stay-in-place behavior among consumers.
But at the same time, the emergence of the latest variant has also led a number of pundits to speculate that the Federal Reserve might take a more dovish approach to monetary policy to continue supporting the economy as it deals with ongoing virus-related concerns. That could in turn keep interest rates low for longer and support longer-duration growth stocks.
“To take a step back, I think you had a global economy that in the fourth quarter [of 2020] through last week was looking incredibly strong … and then a new variant comes along,” Andrew Sheets, Morgan Stanley chief cross-assets strategist, told Yahoo Finance Live. “That would seem to work against a lot of the trades that work in that high-growth environment, and also seemed to disrupt this ‘do central banks need to act more aggressively’ narrative, because if there’s a new variant, then maybe we should be more cautious.”
Major vaccine-makers including Pfizer, BioNTech and Moderna have already said they were collecting data on the Omicron variant and determining whether and how they would need to rework their existing vaccines to address it. Researchers have also not yet determined whether the new variant is definitively more easily transmitted, or responsible for more severe illness, than previous versions of the virus.
“Information is coming rapidly, it’s evolving in real-time. You can understand why investors [last week] were taking a little bit of a pause, particularly given the liquidity situation we had going into the U.S. holiday season,” Vivek Paul, BlackRock investment institution U.K. chief investment strategist, told Yahoo Finance Live on Monday. “I think the reaction you see today puts it in a little bit of context. We’ve seen more information come out, clearly we have to await the science and a bit more detail with regards to the longevity of how Omicron plays out.”
“But we would be in-line with the market reaction today: We think on balance, it would make sense to be invested in the markets at this moment in time,” he added. “It’s all about understanding whether or not this is a delay, or a derailment, of the restart that we’ve seen. And it seems most likely at this moment — not withstanding more information to come— that it looks like a delay.”
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6:15 p.m. ET Monday: Stock futures hold onto gains
Here were the main moves in markets as the overnight session kicked off:
S&P 500 futures (ES=F): +9 points (+0.19{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996}), to 4,660.00
Dow futures (YM=F): +78 points (+0.22{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996}), to 35,155.00
Nasdaq futures (NQ=F): +29 points (+0.18{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996}) to 16,419.75
Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., November 29, 2021. REUTERS/Brendan McDermid
Alibaba, like its peers in Chinese tech, has been under pressure for much of this year.
David Becker/Getty Images
After a year of regulatory pressure and, more recently, disappointing quarterly earnings,
Alibaba
stock has been undergoing a reevaluation by Wall Street.
Some financial analysts have even been making the case that the Chinese e-commerce giant’s competitor,
JD.com ,
may be a better bet.
Alibaba (ticker: BABA) continues to face the music. New research from investment group Susquehanna marks the latest installment in this trend, with a team of analysts slashing their outlook for Alibaba stock as they raised their target for shares of JD.com (JD).
Analysts led by Shyam Patil at the investment group cut their price target on Alibaba stock by 35{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} Wednesday—from $310 to $200—but maintained their Positive rating. The shares closed at $136.52 Wednesday, so the Susquehanna price target still implies some 46{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} upside.
Alibaba’s U.S.-listed stock rose 2.2{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} Wednesday—it wasn’t trading Thursday due to the Thanksgiving holiday.
Alibaba
‘s shares that trade in Hong Kong (9988.H.K.) climbed 2.7{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} Thursday. The stock is near its lowest point since late 2018, and has declined more than 40{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} in 2021.
“Alibaba has been dealing with a regulatory overhang, and now the slowing macro in China is pressuring the business in the near-term,” the team at Susquehanna said.
Patil’s analysis follows Alibaba’s most recent quarterly earnings—which disappointed investors and analysts alike. The company missed sales and earnings expectations, cut its outlook for the full year, and revealed just how badly profits were pinched by eroding margins.
The gloomy financial results added pressure to a stock that has already been beaten down this year, along with much of the rest of Chinese tech. China’s internet giants have found themselves on the wrong side of regulators as President Xi Jinping tightens his control over the economy, though some experts now believe the worst is over.
But Susqhuehanna’s view, in line with analysts from Deutsche Bank and asset manager Needham, is that there are still reasons to be bullish on Alibaba.
“Although Covid may continue to cause periods of softness in the near-term macro, we continue to view Alibaba as the China e-commerce category killer with a large secular growth opportunity and maintain our long-term-oriented positive view,” they added.
As Patil’s team took the axe to Alibaba’s price target, they elevated estimates for competitor JD.com—raising their price target on the stock by 19{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} from $80 to $95 Wednesday and maintaining a Neutral rating on the shares.
JD.com
‘s U.S.-listed shares (JD) slipped 0.1{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} Wednesday with the company’s Hong Kong shares (9618.H.K.) climbing 0.6{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} Thursday.
With the stock closing at $89.36 Wednesday, that implies some 6{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} upside. JD.com has climbed 3.5{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} this year—by no means a stunning performance, but firmly beating the 25{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} year-to-date fall for the
Hang Seng Tech Index,
which is also down 42{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} from its all-time highs in February.
JD.com’s most recent earnings were far more positive than Alibaba’s: the company notched a 25{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} year-over-year jump in quarterly revenue.
“We continue to like JD’s positioning in the large and growing Chinese ecommerce market,” Patin’s team said, noting that they “see potential for longer term upside from its advertising and logistics initiatives scaling, and like the company’s ability to successfully incubate new businesses.”
However, there are some risks ahead for the stock. “The macro, pandemic, and supply chain issues will likely be headwinds in the near-term,” they added.
Stock futures dipped Tuesday evening, holding lower following an extended rout in technology stocks. Investors also anxiously awaited a packed slate of economic data results out Wednesday before a holiday market closure.
Rising interest rates coincided with a selloff in tech and growth stocks for a second day this week, with the Nasdaq dropping another 0.5{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} after Monday’s more than 1{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} decline. The Dow held up strongly and added nearly 200 points, with energy and financials stocks outperforming. The 10-year Treasury yield rose to near 1.7{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996}.
“Initially, the markets were happy with the FOMC decision [for Fed Chair Jerome Powell’s renomination] in the sense that it was sort of a continuity play to some degree. But then rates started to rise, and a lot of folks read rising rates as negative for big-cap tech,” Stuart Kaiser, UBS head of equity derivatives research, told Yahoo Finance Live. “So I think the tradeoff we’re going to have here is that, tech has been market leadership — it’s obviously a strong earnings growth and free cash flow engine for U.S. equities — but if you believe it’s going to come under pressure from higher yields, then you end up with kind of a difficult Catch-22.”
Investors are set to receive a deluge of economic data on Wednesday ahead of the Thanksgiving Day market holiday, with both the U.S. stock and bond markets set to close all day Thursday. These reports will include weekly jobless claims, along with the second estimate of third-quarter U.S. GDP. And importantly, the Bureau of Economic Analysis will release the October personal consumption expenditures (PCE) deflator, offering an updated look at the extent of the price increases still reverberating through the U.S. economy.
The headline PCE deflator is expected to rise by 5.1{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996} in October over last year for its fastest annual growth rate in more than three decades. Taken in tandem with a bevy of other data pointing to persistently high inflation, investors are speculating that the Federal Reserve will step in and raise benchmark interest rates from their near-zero levels next year to try and stem rising prices.
According to other analysts, the market action this week — with a renewed rotation away from technology and growth stocks in the face of rising rates — could presage the investing environment for next year.
“Today might be an example of what we see more of next year as the Fed moves into a mode of withdrawing liquidity from the markets and ending these pandemic-era policies, perhaps with rate hikes at the end of the year,” Jeffrey Kleintop, Charles Schwab chief global investment strategist, told Yahoo Finance Live. “And that means higher-valuation stocks, well, they tend to not do as well in environments of rising interest rates and tighter financial conditions.”
“So you may want to look to be in those sectors that are maybe trading closer to their average valuations, looking to leadership like financials, energy,” he added. “The only caveat to that is when we see these upticks in COVID cases globally, it tends to favor those lockdown defensives like technology.”
—
6:16 p.m. ET Tuesday: Stock futures open lower
Here’s where markets were trading Tuesday evening:
S&P 500 futures (ES=F): -4.75 points (-0.1{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996}), to 4,683.75
Dow futures (YM=F): -27 points (-0.08{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996}), to 35,739.00
Nasdaq futures (NQ=F): -17.25 points (-0.11{21df340e03e388cc75c411746d1a214f72c176b221768b7ada42b4d751988996}) to 16,294.75
NEW YORK, NEW YORK – NOVEMBER 15: A trader works on the floor of the New York Stock Exchange (NYSE) on November 15, 2021 in New York City. Following positive economic news out of China, stocks were up in morning trading on Monday with investors looking at retail sales and earnings results out from major U.S. companies later this week. (Photo by Spencer Platt/Getty Images)
