Wall Street despises uncertainty. The less information investors have, the harder it is to make decisions about how to position for the future.
Unfortunately, this is an example of peak ambiguity. Traders have been left in the lurch as the world rushes to respond to the discovery of the new Omicron variant of the coronavirus. And there’s unlikely to be much clarity in the coming days.
“We have to go through a couple of weeks yet of uncertainty,” Dr. Paul Burton, the chief medical officer for Moderna, told CNN’s Paula Reid on Sunday.
The raft of unknowns spooked financial markets on Friday, when the Dow plummeted 905 points, or 2.5%, logging its worst day in over a year. Oil prices plunged more than 10%.
Friday was a shortened US trading day due to the Thanksgiving holiday. And as is often the case after a major selloff, markets are experiencing a bounce on Monday. But the comeback is modest, and the mood has clearly changed.
The CNN Business Fear & Greed Index, which tracks market sentiment, is back firmly in “fear” territory.
There are five questions, as we see it, that edgy investors now want answers to. The first three are exactly what public health officials are scrambling to determine.
- Is the Omicron variant more transmissible?
- Does it increase the risk of severe disease?
- Does it reduce the efficacy of vaccines?
“The question is, is there a tiny hit to vaccine efficacy, or is there a large hit? I think we’ll get some preliminary data probably in the next few days,” Dr. Ashish Jha, dean of Brown University’s School of Public Health, told CNN.
Two additional questions relate to the potential economic impact of the variant.
- How will governments respond?
- Will consumers adjust their behavior?
“I began this year warning that the evolution of the pandemic was the key risk facing the global economy,” Neil Shearing, group chief economist at Capital Economics, said in a research note on Monday. “News of Omicron, followed by swift moves by governments to close borders to limit its spread, and the sharply negative market response to these events, are a reminder of this acute economic vulnerability.”
A number of countries have slammed their borders shut to visitors from southern Africa. The European Union, Australia, the United States, Canada, Rwanda and many others have banned travelers from countries including South Africa, Botswana, Zimbabwe and Namibia. Japan has closed its borders entirely to non-resident nationals.
It’s not clear, however, whether more stringent rules could be put in place for a broader range of countries, impeding international travel on a wider scale.
Should infections start to jump, countries could also begin to reimpose restrictions on public life. Curfews for restaurants, work-from-home orders and other mandates — which have already been cropping up again in Europe — would hurt the economic recovery.
On the radar: Consumers could also make their own decisions to stay at home should fear about the variant grow.
Investment advisors are telling their clients to avoid spreading alarm and wait for more intel, though they concede this is an important moment.
“We do not recommend panic selling or repositioning,” said Christopher Harvey, senior equity analyst at Wells Fargo. “Conversely, it is hard to say, ‘Nothing to see here … as you were.’ While not real exciting advice we think less is more until we can better ascertain the risks.”
In short: The next few days and weeks could be bumpy as investors react to developments on any of the fronts outlined above. The VIX, which measures market volatility, is down 14% this morning. It’s still at its highest level since September, though, as Wall Street enters a tense wait-and-see period.
Shoppers return to stores for holiday shopping spree
Black Friday doesn’t carry the significance it once did for US shoppers increasingly comfortable with snagging deals online.
But customers still dished out more money for clothing, electronics and other items this Black Friday as they opted to visit stores in person again, my CNN Business colleague Nathaniel Meyersohn reports.
Sales on Black Friday increased almost 30% from a year ago, according to estimates through 3 p.m. ET Friday from Mastercard, which tracks payment data in stores and online. In-store sales jumped 43%.
“[This] speaks to the strength of the consumer,” said Steve Sadove, senior advisor for Mastercard. “We anticipate a positive holiday season well beyond Black Friday.”
Clothing sales led the growth, climbing 86% compared to Black Friday one year ago, when shoppers were mostly staying at home and didn’t have much reason to spruce up their wardrobes.
Gearing up: It’s a strong way to kick off the all-important holiday shopping season. Retail sales in November and December are expected to grow between 8.5% and 10.5% this year compared with 2020, reaching a record of up to $859 billion, according to the National Retail Federation.
But there’s a wrinkle. According to data from Adobe Analytics, online spending on Black Friday was $8.9 billion — a decrease compared to 2020.
“For the first time ever, Black Friday saw a reversal of the growth trend of past years,” analyst Vivek Pandya said. “Shoppers are being strategic in their gift shopping, buying much earlier in the season and being flexible about when they shop to make sure they get the best deals.”
Watch this space: Eyes are now on Cyber Monday. Adobe forecasts it will be the biggest online shopping day of the year, with consumers shelling out between $10.2 billion and $11.3 billion. Will it meet expectations?
Economists are now carefully monitoring the effects of the Omicron variant on consumer sentiment. It had already deteriorated due to inflation, though customers have continued to pull out their wallets.
Canada taps its strategic reserves … of maple syrup
Last week, countries around the world announced they would tap their strategic oil reserves in a bid to lower gasoline prices.
Not to be left out, Canada is also tapping its strategic reserves. But not for crude.
The Quebec Maple Syrup Producers is releasing roughly 50 million pounds from its strategic stockpile of maple syrup, almost half of the trade group’s holdings, my CNN Business colleague Ramishah Maruf reports.
Back up: The government-supported organization, which is often referred to as the OPEC of maple syrup, uses its reserves to control syrup prices and supply. As of 2020, Quebec produced 73% of the world’s maple syrup.
The strategic reserve was created to keep syrup in stock during bad harvest seasons or when demand spikes. While 2021 was an average year for Quebec’s production, sales rose 21% compared to last year, straining supply.
“The pandemic helped in our case because we’re seeing people cook more at home and use more local products,” spokesperson Helene Normandin said in an interview with Bloomberg.
Big picture: This pattern has been replicated for a number of agricultural products in recent months. When weather conditions dent yield, the situation is even worse. Extreme weather has threatened coffee supply, for example, driving futures to their highest level in a decade last week.
Pending US home sales for October arrive at 10 a.m. ET.
Coming tomorrow: Did US consumer spending stay strong in November despite inflation concerns?
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