Crude oil contracts fall as omicron and central bank moves weigh on investors’ minds
The Dow Jones Industrial Average fell to its lowest closing level in more than two weeks, while the S&P 500 posted its biggest three-day percent drop since Sept. 30, as the fast-spreading omicron variant of COVID-19 raised fresh questions about the global outlook.
How did stock indexes trade?
- The S&P 500 SPX finished 52.62 points, or 1.1%, lower at 4,568.02. It was the largest one-day point and percentage decline since Dec. 1, based on Dow Jones Market Data.
- The Dow Jones Industrial Average DJIA closed down by 433.28 points, or 1.2%, at 34,932.16, weighed by losses in UnitedHealth Group Inc. UNH, Travelers Cos. Inc. TRV, Goldman Sachs Group Inc. GS, and Caterpillar Inc. CAT. It was the lowest closing value since Dec. 3. The index also had its biggest three-day point and percentage decline since Nov. 30.
- The Nasdaq Composite Index COMP finished lower by 188.74 points, or 1.2%, at 14,980.94. It was the lowest closing value since Oct. 15, and off by 6.7% from its Nov. 19 record close.
- The S&P 500 posted its biggest 3-day percent slide since Sept. 30, while the Nasdaq Composite posted its worst such drop since May 12.
On Friday, the Dow dropped more than 500 points, or 1.5%, with the S&P 500 and Nasdaq Composite following it lower. For the week, the Dow lost 1.7%, the S&P 500 dropped 1.9% and the Nasdaq tumbled 3%.
What drove the market?
Markets slumped at the start to an abbreviated week of trading for most financial markets in observance of Christmas. Sharp declines were seen in most S&P 500 sectors, led by financials XX:SP500, materials XX:SP500, and industrials XX:SP500 as crude prices plunged.
Worries about omicron sapped some of the joy out of the market for bullish investors, with lockdowns in parts of Europe weighing on sentiment.
News that President Joe Biden’s signature $2 trillion spending plan appeared doomed also was greeted with selling. Sen. Joe Manchin, D-W.Va., said on Sunday that he cannot support it—potentially handing Biden and Democrats a major political loss.
Prompted by the political wrangling, a team led by Jan Hatzius, chief U.S. economist for Goldman Sachs, downgraded its U.S. growth forecast for 2022, citing difficulties in getting the spending bill passed.
Declines in all three major stock-market indexes followed losses last week, which came as Federal Reserve officials sped up their reduction of monthly bond purchases and penciled in three interest-rate hikes next year.
“If worries about the spread of Omicron abated, stock markets would probably recover some of the ground they’ve lost recently,” said Thomas Mathews, markets economist for Capital Economics.
“But given the prospect of less supportive monetary and fiscal policy, and how far equities have already come, we wouldn’t expect this to mark the beginning of another sustained rally, either,” Mathews wrote in a note. “Instead, we expect fairly underwhelming returns from equities over the next couple of years.”
Early Monday, Moderna MRNA said its COVID-19 booster, when combined with two vaccines, offers 37-fold protection against the omicron variant.
But new COVID-19 cases are growing sharply in many parts of the world, fueled by the rapid spread of that variant. Dr. Anthony Fauci said Sunday that he expects record cases of COVID-19 this winter, and urged people to get vaccinated and get boosters. The Netherlands began another lockdown that will last until mid-January and the U.K. hasn’t ruled out tighter pre-Christmas restrictions.
Meanwhile, the World Economic Forum announced that its annual meeting in Davos, Switzerland, which was due to be held in January, will be delayed to summer 2022, due to the spread of COVID-19. It’s the second straight year that the conference has been postponed.
While omicron will leave investors nervous in the short run, that should ultimately fade, according to Eric Schiffer, chief executive of The Patriarch Organization, a private-equity firm. “The biggest driver of the market will be the Fed rate hikes as early as March. Consumer defensives and healthcare will benefit in the short run, while future tech with no earnings will get beaten down harder,” Schiffer wrote in an e-mail to MarketWatch.
Selling of perceived riskier assets extended to oil prices, which fell sharply on concerns of a growing hit to the global economy. West Texas intermediate crude for February delivery CL00 CL fell 3% to $68.61 a barrel, while front-month Brent crude for delivery the same month dropped 2.7% to settle at $71.52 a barrel.
On the data front, the U.S. leading economic index rose a sharp 1.1% in November, the Conference Board said Monday. Economists polled by The Wall Street Journal had expected a 0.9% gain. Over the last six months, the index is up 4.6%.
The increase signals the economy will continue to expand in the first half of 2022 although the resurgence of COVID-19, inflation and supply-chain disruptions remain risks, said Ataman Ozyildirim, senior director of economic research at the Conference Board.
Which companies were in focus?
- Oracle Corp. ORCL confirmed on Monday a deal to acquire electronic-medical-records company Cerner Corp. CERN for $95 a share. Oracle shares finished 5.2% lower, while Cerner shares closed up by 0.8%.
- Shares of BP Midstream Partners BPMP closed 13.3% higher after energy giant BP BP said it has entered into a definitive agreement to buy the master limited partnership in an all stock-deal.
- Novavax shares NVAX finished 7.1% lower, even after the European Medicines Agency recommended granting conditional marketing authorization for its COVID-19 vaccine.
- Moderna MRNA shares closed down by 6.3% even after the pharmaceutical group said a booster shot of its COVID-19 vaccine provided 37-fold protection against the omicron variant when combined with two vaccine shots.
- Biogen BIIB shares finished 0.2% lower after the biotechnology company decided to cut the price of its Alzheimer’s drug Aduhlem by roughly 50%, to about $28,200 a year, starting Jan. 1.
- Bluebird Bio BLUE shares closed 0.9% higher even after the company announced a partial clinical hold for patients under 18 in its sickle cell gene therapy program.
How did other assets trade?
- The yield on the 10-year Treasury note BX:TMUBMUSD10Y rose 1.7 basis points to 1.418%, according to Dow Jones Market Data. Treasury yields and prices move in opposite directions.
- The ICE U.S. Dollar Index DXY, a measure of the currency against a half-dozen other monetary units, was down less than 0.1%.
- Gold futures GC00 for February delivery GCG22 finished down $10.30, or 0.6%, to settle at $1,794.60 an ounce.
- The Stoxx Europe 600 Index XX:SXXP closed 1.4% lower, while London’s FTSE 100 index UK:UKX finished down by 1%.
- In Asia, the Shanghai Composite Index CN:SHCOMP finished 1% lower and the Hang Seng Index HK:HSI closed down by 1.9% in Hong Kong. Meanwhile, China’s CSI 300 XX:000300 finished 1.5% lower and Japan’s Nikkei 225 Index JP:NIK closed down by 2.1%.