According to Bloomberg News, investors are worried even more at this juncture, not about the omicron variant but it is beyond just that. While the newly found Covid strain is a cause of concern and reason for the slump being witnessed at the US stock exchange, but it is being unsurfaced that concerns are galore related to the valuations, Federal Reserve, and year-end volatility.
According to Peter Berezin, BCA Research, “Both Covid headlines and the perception that the Fed will tighten in the face of a negative shock to the company are weighing on equities”.
Delta Distress
When the effects of the delta variant were at their peak and were a cause for concern, investors usually rotated their investments between growth stocks, stay-at-home, and reopening stocks. However, this time around, a larger sect of the market has suffered setbacks which also include reputed technology names that should have benefited from restrictions like Netflix Inc and Zoom Video Communications Inc.
The NASDAQ 100 Index that recorded peal growth when the delta variant was at its peak during June through August dropped 3% since the day of Thanksgiving when omicron stole the attention of the investors.
It is even more noticeable because the yield from bonds is declining. This is a move that investors either consider as an implication on the economic outlook or a justification for high-priced valuations for growth stocks.
Stated Nicholas Colas, the co-founder DataTrek Research, “The problem is US equity valuations, which have been priced for perfection and now confront a noticeably less-perfect world. We won’t know much about the latest pandemic variant for a few weeks, and 10-year Treasuries are flashing yellow about future economic growth”.
Bloomberg News also reports that investors are still concerned over inflation, especially that it might cause the Fed to raise the rates sooner than when it had decided upon, thereby putting the recovery from the pandemic under threat.
Seasonal Oscillations
The selloff spree has blindsided traders speculating chances of a year-end rally to limit a cap for high 2021 stocks. The S&P 500 was seen to close at an all-time high on November 18, which was up by almost 27% for one year. However, since then it has dropped by 4%.
Bloomberg News also reports that December, the last month of the year witnesses the traders dialing back risks and a surge in price swings as the trading volumes dry up. Over the last 10 years, the Cboe Volatility Index has jumped 12% on an average in December.
