Monday December 20th

20-12-2021

Dow futures fall 400 points on omicron fears

U.S. stock index futures were lower in early morning trading Monday as investors continued to grapple with the resurgence of Covid cases and an upcoming shift in the Federal Reserve’s easy monetary policy. Futures on the Dow Jones Industrial Average dropped 400 points, or 1.15%. S&P 500 futures dipped 1.2% and Nasdaq-100 futures declined 1.4%. The omicron variant is raging across the world as the winter holiday season approaches. The strain has been found through testing in 43 out of 50 U.S. states and around 90 countries, and the number of cases is doubling in 1.5 to 3 days in areas with community transmission, the World Health Organization (WHO) said on Saturday. U.S. cases are jumping into year-end with more than 156,000 reported on Friday, according to CDC data. The move in futures is “reflecting growing uncertainty surrounding whether the Omicron surge will bring new widespread economic shutdowns, an unexpected shelving of additional fiscal stimulus from President Biden’s Build Back Better plan, and a breach by the S&P 500 index of its 50-day moving average,” said Jim Paulsen, chief investment strategist at the Leuthold Group. The 10-year Treasury yield backed off to below 1.40% on fears omicron would slow the economic recovery down, while keeping inflation high. Reopening plays were the biggest losers once again in premarket trading Monday. Royal Caribbean shed 4%. United Airlines and Southwest fell more than 3% each. Darden Restaurants also lost 3%. Energy shares, banks, industrials and retailers were also broadly lower in early trading. Moderna was higher by 5% after saying its vaccine booster dose provides significant protection against omicron. On the political front, Sen. Joe Manchin, a conservative Democrat from West Virginia, said Sunday he won’t support the Biden administration’s “Build Back Better” plan. Manchin’s decision will likely kill the $1.75 trillion social spending and climate policy bill as it stands now. Goldman Sachs cut its GDP forecast on the Manchin news, cutting its first quarter 2022 forecast to 2% from 3%. The firm also lowered its second quarter and third quarter growth forecasts. “In light of Manchin’s comments, the odds have clearly declined and we will remove the assumption from our forecast,” Goldman’s economist Jan Hatzius wrote. “With headline CPI reaching as high as 7% in the next few months in our forecast before it begins to fall, the inflation concerns that Sen. Manchin and others have already expressed are likely to persist, making passage more difficult.” The major averages are coming off a negative week, with the S&P 500 declining 1.9%. The tech-heavy Nasdaq Composite dropped nearly 3% last week as investors dumped high-flying growth stocks on the prospect of higher interest rates, while the Dow slipped 1.7%. Some investors are hoping for a Santa Claus rally into the year-end, which calls for positive market performance in the last five trading days of the year and first two trading days of January, according to Stock Trader’s Almanac. “On the one hand, corners of the market are oversold,” Adam Crisafulli, founder of Vital Knowledge, said in a note. However, “the aggressive ‘buy the dip’ mentality, which proved so profitable for the last 1.5+ years, especially in the high-multiple corners of the market, was underwritten by a tidal wave of stimulus that is now receding.” Last week, the Fed announced a more aggressive plan to wind down its asset purchases, and said that it will potentially raise interest rates three times next year. Despite the losses last week, the S&P 500 is still up 1.2% this month, bringing its 2021 gains to 23%. The tech-heavy Nasdaq is down 2.4% in December so far, however, as technology names sold off. The blue-chip Dow has gained 2.6% this month. Shares in Asia-Pacific were lower on Monday, with multiple major markets in the region seeing big losses as China slashed its benchmark lending rate for the first time in more than one-and-a-half years. Mainland Chinese stocks closed lower, with the Shanghai composite down 1.07% to 3,593.60 and the Shenzhen component falling 2.007% to 14,569.18. Hong Kong’s Hang Seng index slipped about 2%, as of its final hour of trading. China on Monday announced a cut in its one-year loan prime rate from 3.85% to 3.8% — the first such move since April 2020. Majority of traders and economists in a Reuters poll had expected cuts to the loan prime rate. Elsewhere, the Nikkei 225 in Japan closed 2.13% lower at 27,937.81 while the Topix index shed 2.17% to 1,941.33. South Korea’s Kospi ended the trading day 1.81% lower at 2,963. Oil prices slumped more than 3% on Monday as surging cases of the Omicron coronavirus variant in Europe and the United States stoked investor worries that new mobility restrictions to combat its spread could hit fuel demand. Brent crude futures fell $1.97, or 2.7%, to $71.62 per barrel, while U.S. West Texas Intermediate (WTI) crude futures were down 3.1%, or $2.20, at $68.66 per barrel. Gold prices were steady on Monday, hovering close to a three-week peak scaled in the previous session, as the spread of the Omicron coronavirus variant smothered appetite for riskier assets, lifting bullion’s safe-haven appeal. Spot gold was steady at $1,797.07 per ounce, as of 1140 GMT, while U.S. gold futures shed 0.4% to $1,798.00. In the previous session, prices hit their highest levels since Nov. 26.