Dow Jones Industrial average futures jumped and Nasdaq-100 futures lagged as investors looked past the emerging threat from the omicron Covid-19 variant, rotating out of high-priced technology shares and into names linked to the recovering economy.
Here’s what was influencing the markets to start the week:
- Shares linked to the economic reopening gained in Monday premarket trading like energy, industrials and airlines.
- Investors continued to sell tech stocks with relatively high valuations. Those shares dragged the market down to a losing week on Wall Street last week.
- The 10-year Treasury yield rebounded after falling last week amid the omicron threat.
- There’s a major shift underway at the Federal Reserve to bring about a faster end to its pandemic easing policies.
- Bitcoin lost $10,000 since Friday, including a sudden drop overnight from Friday to Saturday. The move showed decreasing risk appetite and is hitting related tech stocks.
Dow futures gained 223 points, or 0.8%, while Nasdaq-100 futures shed 0.2% in early Monday trading. S&P 500 futures were higher by 0.3%.
High-priced tech shares were lower in premarket trading, continuing a de-risking theme in markets. Nvidia was off by nearly 3% in premarket trading. Tesla fell about 2%.
“Super-cap tech has been well bid on the expectation of ‘forever’ low rates and support,” said Tom Essaye, author of the Sevens Report, “but with the prospect of rates rising and this new Fed paradigm, we are seeing investors rotate out of tech and into sectors with better exposure to higher growth.”
He added that it was the Fed that pulled the market back late last week, and not fears about the omicron variant.
“Tech pulled the entire market lower. Essentially, we are seeing a sort of Taper Tantrum 2.0 as markets react to a more hawkish Fed and rotate into sectors with more positive exposure to rising rates,” Essaye said.
On Friday, the Nasdaq Composite slid 1.92% with shares of Tesla as the biggest drag. Cathie Wood’s flagship Ark Innovation Fund fell more than 5% Friday, and all of the fund’s holdings are now in a bear market apart from two stocks. Teladoc Health, Zoom Video, Roku, Palantir and Twilio are some of the names that have registered steep losses.
Ark Innovation was down another 2% in premarket trading Monday.
Last week, Fed Chair Jerome Powell unnerved markets by signaling the Fed’s focus was inflation, even with the new variant emerging.
Comments by Fed officials suggest that the Fed is likely to decide to double the pace of its taper to $30 billion a month at its meeting next week, CNBC’s Steve Liesman reported on Monday. Initial discussions could also begin as soon as the December meeting about when to raise interest rates and by how much next year.
Stocks linked to the reopening of the economy gained on Monday, boosting sentiment on Dow futures. Boeing and Chevron shares were in the green.
Delta Airlines shares gained 2% in premarket trading. Carnival and Wynn Resorts shares were about about 1%. Cruise lines and travel booking stocks were higher too.
Bitcoin traded around $57,000 on Friday morning, but by Saturday had plunged to around $43,000. By Monday the world’s largest cryptocurrency had clawed back some of its losses, last trading at around $47,377.
Shares of Coinbase lost about 5% in premarket trading, while Square declined by more than 2%.
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Slower-than-expected job growth also contributed to Friday’s selling. Nonfarm payrolls increased by 210,000 last month, the Labor Department said Friday, which was below the 573,000 number economists surveyed by Dow Jones were expecting.
“A softer payrolls print pulled the rug beneath risk sentiment,” TD Securities wrote Friday in a note to clients. As investors fled to safety the yield on the 10-year Treasury dipped to 1.335%, the lowest since Sept. 21.
Friday’s selling wrapped up a volatile week for the major averages as investors evaluated new information about the omicron variant.
All three major averages finished the week in the red, with the Dow registering a fourth straight negative week for the first time since September 2020. The S&P and Nasdaq Composite were both down for a second consecutive week.
Small cap names were hit especially hard, with the Russell 2000 falling 3.86% for the week.
“Despite our forecast for a flat year for the S&P 500…we are still bullish on pockets of the market, including small caps,” Bank of America said Friday in a note to clients. “Small caps are more domestic, more exposed to the services spending recovery, bigger beneficiaries of capex/reshoring and are inexpensive vs. large caps,” the firm added.
However, Bank of America said the potential upside for small caps hinges on Covid cases staying under control.
The omicron variant has now been discovered in at least 15 U.S. states, CDC Director Dr. Rochelle Walensky told ABC News on Sunday.
“We know we have several dozen cases and we’re following them closely. And we are every day hearing about more and more probable cases so that number is likely to rise,” she said on “This Week.”
