Trackinsight: Stocks nosedive amid renewed Covid fears

November 29, 2021 at 08:45 am EST

Week from 22 to 28 November 2021. The resilience shown by equity markets last week did not last long.

The resilience shown by equity markets last week did not last long. Despite Powell's nomination for a second term as Fed Chair, global stocks plunged after Thursday’s Thanksgiving holiday amid fears on the new Omicron coronavirus variant and the fast-rising case numbers in Europe. This is why several European countries have taken more coercive measures to fight the pandemic, including lockdowns and travel bans to Africa.

Against this backdrop, the MSCI EMU took a nosedive (-5.19%) as investors are afraid that the new variant can put a damper on economic recovery. In the United States, the Dow Jones Industrial Average fell about 700 points, or 1.97%. The S&P 500 lost 2.2%, the Nasdaq dropped 3.52%. Financial markets had already begun to trend lower in the wake of the latest labor market data. Initial jobless claims indeed plummeted to 199,000 last week, their lowest level since 1969, stoking fears of an accelerated tightening of monetary policy.

In Asia, major equity markets followed suit (Korea’s Kospi down 1.16%, Japan’s Nikkei down 3.34%, India’s Nifty down 4.16%) even if the Shanghai Composite managed to edge up 0.10%.

Sea of red across sectors

Energy was the only S&P sector that weathered the storm (+1.66%). Yet oil prices tumbled by about $8 a barrel (WTI crude down 10.45%). The OPEC+ alliance will hold its monthly meeting on December 2 and could withdraw its output hike (i.e. 400,000 barrels per day) on this occasion.

Consumer discretionary (-3.61%), communication services (-3.26%) and information technology (-3.23%) were the most severely hit sectors. The three main defensive sectors outperformed the broad market (consumer staples down 0.23%, health care down 0.86%, utilities down 0.97%). Financials (-0.60%) also stood out even though the flight to quality pushed U.S. Treasury yields lower.

Corporate bonds down though Treasury yields ease back

The yield on the U.S. benchmark 10-year T-note fell from +1.55% to +1.48%. By contrast, the 10-year Germany bond yield remained virtually unchanged week-over-week (-0.34%) while social democrat and former finance minister Olaf Scholz struck a three-way coalition deal on Wednesday.

Corporate investment grade bonds dipped 0.58% in Europe and 0.27% in the U.S. for the third week in a row. High-yield bonds dived (-0.73% in Europe and -1.30% in the U.S.). The same held true for emerging debt (-2.23% in local currencies) even if the dollar index was stable at around 96. Elsewhere, gold tumbled 2.34% (spot price at $1,802.59/Oz) after hitting its highest level since mid-June two weeks ago.