U.S. equities tumbled in a shortened Friday session over fears of a new COVID-19 variant. Stock indexes were little changed heading into the U.S. Thanksgiving holiday, but the late-week meltdown sent stocks lower. Last week was a reminder that the economic recovery path is still dependent on progress against the pandemic and how quickly conditions can change. All 3 major indices finished lower on the week.
Last Week – New Covid Variant
The new covid variant strain is thought to be the most mutated variant yet. This is creating concern over the effectiveness of current vaccines and the durability of global economic recovery. Prior to Friday’s decline, the S&P 500 index had gained over 9% for the quarter and over 26% YTD. For the week ending Friday, the Nasdaq was down 3.52%, the S&P 500 down 2.18%, and Dow finished down 1.95%.
The volatility index soared 10 points to 28.50. Oil prices initially rallied after the U.S and five other countries coordinated to release reserves but ended up down 13% on the week. The average price of gasoline in the U.S. is $3.70 per gallon, approximately $1.25 higher than one year ago. However, oil prices did not decrease on the news, as markets viewed the amount too small to make an impact on prices at the pump.
U.S. economic data was largely positive, however, the new covid variant renewed pandemic risks. Jobless claims, which totaled a stunning 199K, was the lowest level since 1969. President Biden announced he would nominate Fed chair Powell to a second term. Consumer prices have yet to ease, as the Y/Y Core PCE Index rose 4.1%, the highest annual level since 1990. Private sector growth remained robust in November, with U.S. manufacturing PMI increasing to 59.1, but services slipped to 57.0. The second estimate of Q3 GDP ticked up to 2.1% from 2.0%, with a massive upward revision to the increase in wages and salaries.
New home sales rose 0.4% in October, and existing home sales climbed 0.8%. Realtors are projecting full-year sales of over 6 million, which would be the highest total since 2006. Finally, global PMIs echoed U.S. conditions, with strong private sector growth being tempered by inflationary pressures and supply bottlenecks.
Last week was a reminder that the economic recovery path is largely dependent on progress against the pandemic and how quickly conditions can change. Central bank leaders will likely have to continue exercising policy flexibility. Some economists just published expectations of a potential 8% surge in Q4 U.S. GDP, but it remains to be seen how this new covid variant threat may undermine that outlook. After last week’s strong unemployment claims number, investors will look for additional labor market clarity from Wednesday’s ADP and Friday’s NFP reports. This week also brings U.S. ISM manufacturing and services PMIs, along with the regional report from Chicago.
Year-to-date index performance; Dow up 14.03%, S&P up 22.33%, and Nasdaq up 20.20% through the close on Friday.
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