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Stocks Tumble in Shortened Session Amid COVID Concern Flare-Up
U.S stocks saw noticeable pressure on the heels of yesterday's Thanksgiving holiday break and amid lighter-than-expected volume as the markets closed early today. Stocks fell amid resurfacing COVID-19 concerns after reports of a new variant found in South Africa. Travel-related issues dropped as Asia and Europe reinstated some restrictions, though stay-at-home and some vaccine oriented stocks gained ground. The economic calendar was void of any major releases today and equity news was also light. Treasuries rallied to apply solid pressure on yields, and the U.S. dollar fell. Crude oil prices tumbled and gold saw demand. Asia fell and Europe saw a broad-based drawdown amid the flared-up COVID concerns.
The Dow Jones Industrial Average tumbled 905 points (2.5%) to 34,899, the S&P 500 Index fell 107 points (2.3%) to 4,595, and the Nasdaq Composite dropped 354 points (2.2%) to 15,492. In light volume, 3.5 billion shares of NYSE-listed stocks were traded, and 3.4 billion shares changed hands on the Nasdaq. WTI crude oil plunged $9.37 to $69.02 per barrel. Elsewhere, the gold spot price rose $1.40 to $1,785.70 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.6% lower at 96.16. Markets fell on the week, as the DJIA declined 2.0%, the S&P 500 decreased 2.2%, and the Nasdaq Composite dropped 3.5%.
The markets fell after reaching record highs as of late in lighter volume amid the Thanksgiving holiday week. Volatility ramped up and was exacerbated by reports of a new COVID-19 variant out of South Africa, which has prompted new travel restrictions in Asia and Europe.
Also, stay-at-home stocks, which have been under pressure as of late, traded higher, along with some vaccine and COVID-19 treatment issues, while travel-related companies saw pressure.
This week, the markets declined and came off of record highs as Treasury yields were volatile to foster some choppiness in growth-related sectors and those most sensitive to interest rates. The markets grappled with if the persistent inflation pressures could force the Fed into moving faster down the path of monetary policy tightening, exacerbated by continued signs of economic growth. Markit's November Manufacturing and Services PMIs continued to show solid expansion, jobless claims fell to the lowest level since 1969, and personal income and spending figures for October both came in stronger-than-expected, while the minutes from the Fed's early-November meeting showed some policymakers were concerned about inflation. Consumer Discretionary stocks were the worst performers on the flared-up COVID-19 concerns and as several earnings reports from the retail sector attracted high scrutiny on the Street. Energy and the defensively-natured Consumer Staples sector outperformed this week. The Treasury yield curve flattened, the U.S. dollar nudged higher after paring gains on Friday, and gold moved lower. Crude oil prices fell as the virus concerns were met with the announcement of a globally-coordinated release of strategic oil reserves, led by the U.S.
Schwab's Chief Investment Strategist Liz Ann Sonders provides her latest article, Mysterious Ways: Bullish Sentiment Grows, With Positive Offsets, discussing how both the market's churn and success have bred a resurgence in optimism which, for now, has been positively offset by strong breadth and firm profit margins.
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Treasuries rally amid resurfacing COVID concerns, markets close early
Treasuries gained solid ground amid the global market uneasiness regarding a potential new COVID-19 variant, while the economic calendar was void of any major releases. The yield on the 2-year note dropped 13 basis points (bps) to 0.52%, the yield on the 10-year note fell 15 bps to 1.49%, and the 30-year bond rate decreased 12 bps to 1.84%.
Bond yields have been choppy as of late and Schwab's Chief Fixed Income Strategist, Kathy Jones notes in her latest 2022 Fixed Income Outlook: Rough Waters how we expect another wave up in bond yields in 2022 as central banks around the world shift away from the very easy policies of the past few years. Kathy points out that with the pandemic-era policies ending, investors should be prepared for shifting tides and the risks and opportunities they present.
Please note: All U.S. markets closed early today, 1:00 p.m. ET, following the Thanksgiving holiday.
Next week, the economic calendar will bring the release of November Manufacturing and Services PMIs from the ISM and Markit, but will likely be headlined by Friday's November nonfarm payroll report. Other releases slated for next week that could garner attention include, Consumer Confidence, jobless claims for the week ended November 27, and the Fed's Beige Book—a anecdotal read on business activity across all Fed districts used as a policy tool to prep for the next monetary policy decision set to be announced on December 15. Also, amid the Fed accelerated tightening uncertainty, next week's host of Fedspeak could be a potential market mover, headlined by three days of commentary from Fed Chairman Jerome Powell.
Europe and Asia fall as cyclical sectors lead a broad-based decline amid COVID concerns
European equities fell broadly as reports of a new COVID-19 variant out of South Africa resuscitated concerns across the globe as the U.S. markets dropped in the wake of a holiday break yesterday. Cyclical stocks led to the downside, paced by Energy and Financials, while travel-related issues also came under pressure as Europe and Asia reinstated some restrictions on travel. Bond yields in the Eurozone and U.K. traded solidly lower, while the euro and British pound gained some ground versus the U.S. dollar. Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, offers his 2022 Global Outlook: Slowing But Not Slow, noting how global GDP surpassed its pre-pandemic level in 2021, and although it's expected to slow in 2022, it is still expected to grow at an above average rate. In addition, Jeff notes that fiscal policy in the U.K. and Europe is expected to support economic growth, while central banks have been slow to end their loose monetary policy, and supply and inflationary pressures may soon ease up. Amid all this, Jeff highlights four themes for investors: consider international stocks, go green and look at eco-friendly investments, look into firms that are buying back shares, and guard against potential gluts that might emerge.
In economic news, Italian manufacturing and economic confidence figures for November came in better than expected, while Switzerland's Q3 GDP expanded more than expected, but slowed from Q2's rate.
The U.K. FTSE 100 Index was down 3.6%, Germany's DAX Index declined 4.2%, France's CAC-40 Index dropped 4.8%, Italy's FTSE MIB Index fell 4.6%, Spain's IBEX 35 Index tumbled 5.0%, and Switzerland's Swiss Market Index traded 2.0% lower.
Asia falls amid flared-up COVID variant concerns
Stocks in Asia fell broadly amid resurfacing worries regarding reports of a new COVID-19 variant being found in South Africa, which have fostered some travel restrictions in the region and Europe. The markets reacted to the news while the U.S. markets were set to return to action following yesterday's holiday break. In economic news, Tokyo consumer price inflation for this month accelerated, while Hong Kong's October exports rose more than expected. Meanwhile, the flared-up COVID variant concerns come as the markets continue to contend with supply-chain challenges and inflation pressures. Schwab's Jeffrey Kleintop offers his article, Will Shortages Lead to Gluts?, noting how the global economy may be closer to the end of supply chain problems than the beginning. He points out how markets tend to look six to twelve months into the future, and they may soon begin to consider the possibility that some shortages may start to ease, and gluts may have started to form by the second half of next year.
Japan's Nikkei 225 Index fell 2.5%, with the yen rallying late in the session, while China's Shanghai Composite Index declined 0.6%, and Hong Kong's Hang Seng Index dropped 2.7%. South Korea's Kospi Index traded 1.5% lower, on the heels of yesterday's interest rate hike by the Bank of Korea. India's S&P BSE Sensex 30 Index tumbled 2.9%, and Australia's S&P/ASX 200 Index decreased 1.7%
Next week's international economic calendar will be highlighted by China's Manufacturing and Services PMIs for this month, which will be accompanied by Japan's preliminary industrial production and retail sales for October, as well as preliminary Eurozone consumer price inflation statistics, and German retail sales.
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