Wall Street is showing growing unease with the increase in the number of Covid-19 cases abroad and the potential economic toll of restrictive measures to avoid a public health calamity. As European countries struggle to contain a deadly fourth wave of the pandemic, market watchers in the United States have been forced to face the prospect of another winter in which the pandemic remains a key factor in shaping the trajectory. the country’s economic recovery.
Negative market sentiment was most apparent via the Dow Jones Industrial Average, which closed down 1.4%. The broad S&P 500 was roughly flat, closing with a loss of 0.14%. The outlier was the Nasdaq which at 16,057 hit another record due to its composition of dominant tech stocks that benefited from stay-at-home orders and a population reluctant to mingle with others in spaces. closed.
“The possibility of Covid being more severe and more enduring in terms of behavior and economics is reflected directly in the market today,” said George Ball, chairman of investment firm Sanders Morris Harris. “The possibility that there is another wave and another variant in the United States is now weighing on the markets. It is not something that people expected.
Austria said on Friday it would re-impose a nationwide lockdown to stem the spread of Covid-19, and Germany’s health minister said lockdowns could not be ruled out, just a day after the country’s leaders announced more restrictions on unvaccinated people.
“Germany is a big exporter, so it’s a concern if Germany goes into a blanket lockdown,” said Megan Horneman, director of portfolio strategy at Verdence Capital Advisors.
With vaccination rates too low to achieve herd immunity and a growing number of groundbreaking infections, the underlying fear is that the United States could also be on the cusp of another wave. “I think it’s a bit of a math for what’s to come. Winter is coming … and with that you have a congregation of people inside, ”said Johan Grahn, head of ETF strategy at AllianzIM. “I think this is just a prelude in Europe to what seems to be inevitable, and that’s what really shakes up the markets here.”
I think this is just a prelude in Europe to what seems to be inevitable, and that’s what is really rocking the markets here.
Uncertainty over who President Joe Biden will be leading the Federal Reserve for the next four years also hangs over Wall Street. The White House has signaled that the two main candidates are current Fed Chairman Jerome Powell and Fed Governor Lael Brainard, who are favored by some on the left for his views on regulation and the role central bank in shaping the financial system’s response to problems. like climate change.
Brainard is also seen as less likely to raise interest rates, which is the Fed’s biggest tool to curb soaring inflation. While the investment community in general tends to prefer a more accommodating stance on monetary policy, Horneman said this could be the exception to the rule in that a change of direction within the central bank la most powerful in the midst of a single event The global pandemic of the last century could introduce an unwanted degree of uncertainty.
“He’s shown he’s not necessarily a hawk per se … but he’s also a realist,” Horneman said. “There are inflationary pressures right now that need to be addressed, especially if we’re talking about additional government spending,” she said, referring to Biden’s $ 1.7 trillion social safety net program which has was adopted by the House of Representatives on Friday.
“The biggest thing that continues to be a question mark is the timing of rate hikes,” said Liz Young, head of investment strategy at SoFi. “It would upset the apple cart to have change.” The Fed has been behind much of the market movement over the past two years, ”she said, and is likely to remain heavily involved as a measure of inflation. – and the concern that it might not be “transient,” to use the Fed’s preferred term – remain high.
Investment experts fear that future supply chain disruptions will strain the resilience of U.S. businesses, workers and consumers as the cold dies down, household costs rise and pandemic fatigue has become almost as endemic as the virus itself.
“The risk of a new conflagration of Covid cases would further cripple the supply chain. This could reduce the willingness to re-enter the workforce on the part of millions of potential workers, and at the same time, it could further fuel inflation concerns, ”Ball said.
The current surge in Europe threatens to fuel the flames of higher inflation, said Steve Rick, chief economist at CUNA Mutual Group. “We are pushing for supply chain reconciliation,” he said. “It may take longer now with the resurgence.”
Rick pointed out that, as a new wave of Covid is reducing travel, it could help cut soaring energy costs that worry domestic and foreign lawmakers as winter hits the northern hemisphere. “It would be a little silver lining, but the overall supply chain will be under pressure,” he said.
How long these conditions persist could mean the difference between minimal lasting economic pain and something much darker, Young said.
“The timing of all of this is really important. It’s about the endurance we have. How much stamina do businesses have to keep eating these higher input costs, and how much endurance do consumers have? She said. “I think it’s going to be a very delicate dance.”