Black Friday Blues

Black Friday was an ugly one in the financial markets as concerns about a new variant of the coronavirus triggered a sell-off around the globe.

Here in the U.S. the S&P 500 declined by 2.27%, taking it back to levels seen just one month ago. Cryptocurrencies saw a much larger decline with Bitcoin dropping more than 8%. Oil prices also took a pounding down 11.52%. Bonds were the benefactor of the sell-off with prices soaring and dropping the yield on the 10-year Treasury Bond from 1.64% to 1.49%.

Speaking on CNBC, Dr. Scott Gottlieb, former Commissioner of the FDA, said it is far too early to panic about the new variant found in South Africa known as Omicron. Dr Gottlieb pointed out that the toolkit available now, including not only vaccines, but also antivirals such as the new Pfizer pill, means we are much better prepared if the new variant causes another wave of infections. He also mentioned that there have been other variants that caused initial concern, but quickly fizzled out.

For some perspective, as of Friday there had been just 77 confirmed cases of the new Omicron variant in South Africa. That compares to greater than 24,000 daily cases at the peak in South Africa this past summer. Of course we all know that the coronavirus has been impossible to predict, but as Dr Gottlieb said, it seems premature to panic with the advanced toolkit now available. Some positive news over the weekend from Israel was that vaccinated individuals infected with the Omicron variant only showed very mild symptoms. Of course it is very early and that can change, but it is positive nonetheless.

Another important point about the stock market is this - since October 4th the S&P and the Nasdaq had been up over 9% and 11% respectively going into Black Friday. So stocks were vulnerable to a pullback.

That said, after taking the weekend to cool down some investors were buying stocks on Monday, taking advantage of lower prices after Friday’s panic selling.

On a different note, last Monday Joe Biden reappointed Jay Powell as Fed chairman. While we believe the Fed waited far too long to begin tapering the $120 billion of monthly bond buying, Powell was a better choice than the alternative candidates. Judging by price action after Biden’s announcement, investors believe Powell will raise rates faster and will be more aggressive fighting inflation. It remains to be seen if this will be the case, especially since Powell has been wrong about inflation being transitory.

Seasonally November and December are favorable for stocks. But as Black Friday shows, financial markets still can run into trouble during this period. We will continue to closely follow developments.