Ouch!
Stock markets fall across the world
Stock markets fell across the world yesterday in response to the appearance of a new strain of covid coming out of South Africa, the Omicron strain. On Friday the US stock market was down 2.5% and the European markets a bit more, 3.5% on average, with Germany and France down 4-5%. The price of US crude oil fell 13% and the price of UST bonds rose, bringing 10-year UST yields down from 1.65% to under 1.5%.
We don’t yet know how this will play out and there are many questions that need to be answered. How quickly will this new strain of covid spread across the world? How virulent will it prove to be? How will it respond to existing or new vaccines and treatments? How will public concern with Omicron influence vaccination rates and public health behavior and protocols? What will be the impact on business and the real economy? How will governments and central banks respond? How long will this last? What comes next?
These are all good questions, but right now the capital markets are taking the sensible view of sell now, ask questions later. As of yesterday we are back in a “risk off” world. And we may be there for some time.
But before we all panic, let’s put things in some perspective. The arrival of another new strain of covid should have surprised no one. We will be living with this virus for many years to come and the big question remains how well we adapt to it (as it adapts to us). A one-day several percentage point move in stock markets is not insignificant, but let’s not forget that the global stock markets are up 20-30% over just the past year and have doubled since the initial covid panic in March 2020. Before yesterday’s fall, crude oil prices were at $80 (WTI spot), up 4x from the March 2020 low ($20). And while a 10% move in UST yields is certainly noteworthy, let’s keep in mind that we are talking about an absolute change of just 15bp. And all of this happened on the Friday after Thanksgiving, a notoriously quiet day in the capital markets (although not so quiet yesterday, obviously.)
I don’t know how the markets will open on Monday, or how things will develop over the coming days, weeks and months. But for now I am going to be thankful for all our many blessings, eat yet another turkey sandwich and resist the urge to look at my brokerage statements. As for the many other serious challenges confronting our nation and the world, I will think about that later.
A belated “happy Thanksgiving” to all.
Links
Stocks, Oil Drop on Covid Concerns, WSJ, 11.26.2021
Omicron Variant Prompts Travel Bans and Batters World Markets, NY Times, 2.26.2021