DOW JONES OUTLOOK:
- U.S. stocks plunge Wednesday after CDC confirms first case of Omicron variant in the country
- All major averages ended sharply lower, with the Dow Jones down 1.34% at the market close
- With little information on the Omicron strain at this time, volatility is likely to remain elevated and stocks biased to the downside in the near term
U.S. stocks opened with big gains on Wednesday, supported by strong employment and manufacturing output results, but reversed course in the afternoon and ended the day down sharply after the Centers for Disease Control and Prevention (CDC) confirmed the first case of the Omicron variant in the country, sparking panic on Wall Street.
At the market close, the S&P 500 retreated 1.18% to 4,513, erasing the 1.9% gain recorded earlier in the session. Meanwhile, the Nasdaq 100 plunged1.6% to the 15,877 level, dragged down by significant losses in Facebook and Tesla shares. The Dow Jones Industrial Average also took a hit, falling 1.34% and breaking below its 200-day SMA to finish the day at 34,022, as investors rushed to de-risk their portfolios amid coronavirusangst.
Focusing on economic data before addressing pandemic concerns, the ADP report showed that the private sector created 534,000 jobs in November, overshooting consensus of 525,000 positions. The strong hiring suggests that the labor market is bouncing backat a brisk pace after the summer’s rough patch, a good sign for the recovery. Separately, the manufacturing ISM also beat expectations, rising to 61.1 last month, up from 60.8 in October, amid strong demand.
While economic data has been encouraging of late, uncertainty over the COVID-19 Omicron variant continues to weigh on sentiment, leading traders to remain overly cautious. For this reason, travel and leisure stocks have sold off dramatically in recent weeks, with American Airlines and Royal Caribbean down ~27% and ~35% respectively from their November highs.
For the market to the stabilize and for bullish momentum to resurface heading into 2022, investors will need clarity on the omicron variant. At this time there is little information on the severity and transmissibility of the heavily mutated strain, but we should know more in a couple of weeks, after scientists gather more data for comprehensive epidemiological studies. Until then, volatility is likely to remain elevatedand stocks may be vulnerable to unexpected pullbacks in the event of negative coronavirus headlines, with shares linked to the reopening most exposed to a large drop.
DOW JONES INDUSTRIAL AVERAGE CHART
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—Written by Diego Colman, Contributor