- Stocks plummeted on Friday as investors braced for the Omicron variant fueling a new round of lockdowns.
- In one day, the market challenged the idea of economic "reopening" and revived "stay-at-home" stocks — and the homebody economy.
- Such massive one-day stock swings can drive government policies that benefit big-time investors over the average worker.
Reports of an ominous new COVID variant powered one of the biggest stock market tumbles of 2021 the day after Thanksgiving. It could all be for nothing — and that reveals a dangerous trend in the US economy.
Such major stock-market movements may be too influential, shaping both how corporations are run and how the government shapes economic policy. And when the stock market digests more complex and complete information, it's often too late to change a major policy decision that's been set in motion.
The power of market moves was everywhere on Black Friday, as investors frantically dumped stocks amid news of the Omicron variant emerging in Africa. The Dow Jones Industrial Average shed more than 1,000 points at intraday lows, while the S&P 500 dropped the most since February. Safe havens like Treasury bonds soared as traders sought less volatile assets. Popular stay-at-home plays like Zoom Video, Peloton, and DocuSign jumped as traders braced for another round of lockdowns. Governments joined the panic too, immediately, instituting travel bans.
The selloff reveals widespread concern that the strain will plunge the world into a new economic disaster, but those concerns may yet be overstated.
Little is actually known about the latest variant. The strain, named B.1.1.529, has been found in South Africa, Botswana, and Hong Kong. Relatively few genomic sequences are available to scientists, meaning they can't yet study it comprehensively. Experts fear the strain has mutations that could make it more infectious, but it's still unclear whether current vaccines protect against it or not.
The moment echoes that seen over the summer, when the first headlines of the emerging Delta strain put a damper on the global recovery. Subsequent research showed vaccines are effective against Delta, and continued vaccination has helped put the world economy back on track for a full recovery, but the immediate reaction was strong enough to halt many companies' planned returns to their offices in the fall, and that decision resulted in months of weaker hiring before the boom recommenced.
Then, Delta initially looked like a much bigger deal to hiring than it actually was. The stock market had several strong negative reactions to weak jobs reports throughout the Delta wave. When subsequently revised data showed hiring had actually been somewhat weaker instead of a disaster for the job market, public sentiment had already soured on an economy that's booming but doesn't quite feel like it.
Markets are much more fluid than economic policy
The Omicron variant is similar to the Lambda and Beta variants in that they seem to evade immunity, Richard Lessells, an infectious diseases specialist at the KwaZulu-Natal Research and Innovation Sequencing Platform, told The New York Times on Friday. That means the new variant is cause for concern, but the dramatic Friday response may not be the correct one.
Research shows that travel bans are more harmful than helpful to countries in the long run. One 2020 study for the Journal of Emergency Management found that negligible evidence to support their use in minimizing the spread of emerging infectious diseases, while the WHO urged governments not to adopt such restrictions yet, advice that was ignored by the US, the UK, and several others.
Former FDA Commissioner Scott Gottlieb, a prominent voice in US public health, criticized the White House's Friday travel ban, writing on Twitter that "too much we don't know to impose economically, socially ruinous policies."
"It's counterproductive in [the] short and long run to impose harsh travel restrictions on affected countries," Gottlieb wrote. "Outright travel bans can hurt more than help."
Friday's selloff makes sense from a free-markets perspective. Investors constantly try to front-run trends so they can profit the most from new developments at companies or across the whole economy. For example, those who bet on global lockdowns as the pandemic was just emerging in China likely enjoyed the largest gains from stay-at-home stocks and safe-haven assets. If the Omicron variant does end up evading vaccines, then investors who shifted cash to stay-at-home plays will most likely profit.
But investors' knee-jerk reactions to fluid situations can hurt the public. For instance, Target and Walmart both sank last week even though they reported blowout financial results. Paradoxically, traders punished the companies for being too nice to their customers.
Target CEO Brian Cornell said the company was "protecting prices" from the US's historic inflation instead of passing costs on to consumers. Walmart CEO Doug McMillon made similar remarks in an earnings call, telling investors "fighting inflation is in our DNA." The retailers' profits still exceeded expectations, yet investors dumped the stocks for not preserving their margins well enough, sending the message that the public should shoulder higher costs — and companies' responsibility is to make as much cash as they can.
The stock market is driven by the feelings of attitudes and investors, not economic policy creators. Friday's huge market movement shows that even a near thousand-point drop should be taken with a grain of salt. But to paraphrase Barack Obama: reality has a way of asserting itself.