Wall Street Breakfast: What Moved Markets

- The world's stock markets plunged alongside oil prices and U.S. Treasury yields Friday after South Africa raised the alarm over a fast-spreading strain of the coronavirus, sparking concern that travel restrictions and other curbs will spoil the global economic recovery. The World Health Organization called the new Omicron strain a "variant of concern" that could be more transmissible than other strains of the virus. The Dow Jones average fell more than 900 points, or 2.5%, for its worst day of the year, while the S&P 500 slumped 2.3% and the Nasdaq Composite slid 2.2%. The best performers included some of the stay-at-home plays that performed so well in the earlier months of the pandemic, such as Zoom, Peloton and Moderna. But travel-related stocks including airlines and cruise lines were hit hard, and banking shares slipped on worries that an economic slowdown would lower rates. Indeed, bond yields fell in a flight to safety, with the benchmark 10-year yield tumbling 12 basis points to 1.52%, and U.S. crude oil collapsing more than 10% to break below $70 per barrel.

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Top News Shutterstock The world's stock markets plunged alongside oil prices and U.S. Treasury yields Friday after South Africa raised the alarm over a fast-spreading strain of the coronavirus, sparking concern that travel restrictions and other curbs will spoil the global economic recovery. The World Health Organization called the new Omicron strain a "variant of concern" that could be more transmissible than other strains of the virus. The Dow Jones average fell more than 900 points, or 2.5%, for its worst day of the year, while the S&P 500 slumped 2.3% and the Nasdaq Composite slid 2.2%. The best performers included some of the stay-at-home plays that performed so well in the earlier months of the pandemic, such as Zoom, Peloton and Moderna. But travel-related stocks including airlines and cruise lines were hit hard, and banking shares slipped on worries that an economic slowdown would lower rates. Indeed, bond yields fell in a flight to safety, with the benchmark 10-year yield tumbling 12 basis points to 1.52%, and U.S. crude oil collapsing more than 10% to break below $70 per barrel.       Central Banking Powell stays on Treasuries yields and the dollar spiked, gold sold off, and stocks first rose and then fell towards the end of the session on Monday after Jerome Powell was nominated for another four-year term at the Federal Reserve. The central bank is now expected to maintain its current course on tapering economic support as it grapples with rising inflation and lingering economic impacts of the pandemic. Less dovish or hawkish monetary policies typically coincide with higher interest rates as the cost of borrowing increases due to a tightness in financial conditions. 2 for 1 deal: In another big announcement, Fed Governor Lael Brainard was elevated to vice chair, the bank's No. 2 role. There had been much speculation that she could have even taken the top job in recent weeks, with Brainard meeting with President Biden and progressive lawmakers calling for her appointment. By nominating both, the administration is able to rely on a steady hand at the Fed, while also addressing the need for taking regulatory concerns more seriously. Brainard is seen as the Democratic party's most accomplished economic policymaker, spearheading campaigns on big bank oversight and finding a path to address climate change through the Fed's financial stability mission. In terms of future policy, many have pointed to Powell's success in navigating the U.S. economy through COVID-19 and one of the worst contractions since the Great Depression. That doesn't mean he's without criticism, though he has largely been able to overshadow his detractors and opponents. We're starting to see a slight pivot from "inflation is transitory" and moves to policy normalization would "begin in a slow fashion," giving a greater sense of urgency and command of the economic backdrop. Next steps: The nominations of Powell and Brainard must be formally submitted to the Senate, which will refer them to the Senate Banking Committee. Confirmation hearings will then be scheduled, and the 100-member Senate will vote on their appointments, with both expected to be approved despite some partisan disagreements. "Our base case is that they will be cleared by the full Senate this year," said BTIG analyst Isaac Boltansky. Biden also has three vacancies to fill at the Fed's seven-member Board of Governors, including the vice chair for supervision role recently vacated by Randal Quarles. (118 comments)       Featured Crush this Black Friday with Seeking Alpha! Investing comes easily when you have Seeking Alpha Premium. Our Very Bullish Stock Picks are beating the market by more than 4-to-1. Join now to take advantage of our biggest Black Friday sale ever - and 2-week free trial! You'll also get unlimited access to: In-Depth News & Research, Multiple Stock Idea Screeners, Analyst Upgrades/Downgrades, Portfolio Alerts and Stock Warnings. Try Premium for free now >> Energy Strategic Petroleum Reaction WTI crude climbed more than 4% on Tuesday (but plunged at the end of the week) after the Biden administration announced plans to release 50M barrels of oil from the U.S. Strategic Reserve, along with China, Japan, India, South Korea and the U.K. While the move was meant to lower prices, the volumes announced were much less than the market was expecting and would need to be sustained over a longer period of time. Many of the barrels will also need to be returned by the refiners who buy them, leaving traders forecasting tighter balances. Quote: "I told you before that we're going to take action on these problems. That's exactly what we're doing," President Biden said from the White House. "It will take time, but, before long, you should see the price of gas drop where you fill up your tank, and in the longer term, we will reduce our reliance on oil as we shift to clean energy." Meanwhile, a large portion of the barrels is set to be exported to China and India. That's because the supplies will comprise of sour crude, a type of oil that many American refiners are avoiding due to its high sulfur content, which makes it more expensive to process. Foreign buyers are also attracted to the oil since it's cheaper than the global Brent benchmark. Go deeper: Following the decision, some are even referring to the U.S. emergency stockpile as the Strategic Political Reserve, with the president under pressure to tamp down inflation. OPEC+ is also scheduled to meet in a few weeks and could unveil a counterpunch if the group feels threatened. The cartel would need to give up two months of output increases to offset the 50M barrel release, after snubbing several requests from Washington to pump more oil. The U.S. national average price for a gallon of gas was $3.40 on Tuesday, according to AAA, more than a $1 increase from a year ago. (182 comments)       Cryptocurrency 'Bitcoin City' El Salvador is doubling down on its bet on Bitcoin (BTC-USD), detailing plans to build a modern Alexandria called "Bitcoin City." The metropolis would be circular, with an airport, residential and commercial areas, and feature a central plaza designed to look like a Bitcoin symbol from the air. Geothermal energy would be provided from the Conchagua volcano in southeastern El Salvador, while the city would not levy any taxes (property, income or capital gains) except for VAT. Flashback: In June, El Salvador passed a law making it the first country in the world to accept Bitcoin as legal tender, while the plan took effect in September with the launch of the Chivo Wallet (a government-sponsored digital wallet designed to facilitate transactions). Despite the hype, dollars remain by far the main medium of exchange, as well as the currency coming into the country. In September and October, Salvadoreans abroad sent only $32M in remittances back home using the Chivo Wallet, representing about 2.5% of the total remittances. "This is going to make El Salvador the financial center of the world," President Nayib Bukele declared. "Invest here and make all the money you want... This is a fully ecological city that works and is energized by a volcano." Construction of "Bitcoin City" will begin in 2022 and will be funded initially by sovereign bonds backed by the cryptocurrency. The first 10-year issue would be worth $1B, and carry a coupon of 6.5%, with half of the sum going to buy Bitcoin on the market and the other half used for infrastructure and Bitcoin mining. After a five-year lock-up, El Salvador would start selling some of the Bitcoin used to fund the bond to give investors an "additional coupon," and other bonds would follow. Volatility watch: Bitcoin has slipped 20% from its record high of $68,990 which it reached earlier this month, but it is still up about 90% this year. (142 comments)       Consumer Retail in focus The retail news flow did not stop this week as a flurry of earnings and Black Friday dominated the headlines. Shares of Gap (GPS) slumped 20% on Wedneday after slashing its outlook as COVID-related factory closures led to significant product delays, while Nordstrom (JWN) collapsed 27% as labor costs cut into profits and sales. Abercrombie & Fitch (ANF) was also among the biggest losers in the sector, with mall retailers feeling investors' wrath amid worries about margins and slowing growth.

Snapshot: Another interesting story that made waves was a remark from Best Buy (BBY) CEO Corie Barry on a post-earnings interview. She told CNBC that the rise of organized crime is a "horrible change" for the "trajectory of the business" and the electronics retailer is "working hard to try to stem" loosely organized bands of thieves who have targeted the firm's locations. Barry also noted that Best Buy was among many retailers who have faced a spike in these attacks and has put measures in place to prevent the thefts, such as locking up certain products and working with local law enforcement.

Kroger previously highlighted organized crime as a reason for its reduced margins when it reported quarterly results back in September. Over in San Francisco, Louis Vuitton (OTCPK:LVMHF), Burberry (OTCPK:BBRYF) and Hermes (OTCPK:HESAF) stores were ransacked last weekend, while a raid on a Nordstrom in nearby Walnut Creek was even more brazen. Just before closing time, some 80 people jumped out of a group of cars and assaulted two employees before escaping with hands full of merchandise.

Holiday sales: Shopping trends are on track to make a comeback this year, with 158.3M people (nearly 2M more people than last year) expected to shop from Thanksgiving Day through Cyber Monday. That's according to the latest report from the National Retail Federation, which estimates consumers will shell out an average $997.73 on holiday sales during November and December. At those levels, it would mean a growth rate of between 8.5% and 10.5% over 2020 to a total of $843.4B-$859B, setting records for both the expansion and total amount spent.

     

On The Move

Black Friday

Friday's shortened trading day was supposed to be a calm one, given the typically low trading volumes seen on Black Friday, but fears of a new COVID-19 variant found in South Africa is shaking up sentiment. Dow futures plunged more than 800 points before the open, while contracts linked to the S&P 500 and Nasdaq fell 1.8% and 1.2%, respectively, after stocks sold off in Europe and Asia. WTI crude oil futures (CL1:COM) also tumbled nearly 7% as the U.K. imposed fresh travel restrictions, though Zoom Video (ZM) and Peloton (PTON) took off as the news revived the stay-at-home-trade.

New variant: Believed to have first emerged in Botswana, B.1.1.529 will be called as such until a Greek letter is assigned to it by the World Health Organization. The variant carries an unusually large number of mutations associated with increased antibody resistance and is "clearly very different" from previous incarnations. South African scientists have already detected 30 mutations to the spike protein, which play a big role in how the virus enters the body.

The biggest concern is whether the virus could lead to more serious illness or decrease the effectiveness of vaccines and treatments. While we don't yet know whether it's more infectious or deadly than other variants, it's spreading across the globe. B.1.1.529 has been found in travelers arriving in Hong Kong, just as COVID cases surge around the world heading into the holiday season.

Go deeper: The World Health Organization (WHO) has designated the new COVID strain detected in South Africa as a "variant of concern", which prompted nations around the world to impose travel restrictions amid fears over its potential spread "For the moment it is understood that the number of cases is small, but due to the thin liquidity levels in Asia trading as a consequence of the U.S. holiday the reaction does appear to be outsized," said Michael Hewson, chief market analyst at CMC Markets. Other variants of concern include Delta, which is now dominant worldwide, as well as Alpha, which triggered a deadly wave of infections across Europe and the U.S. last winter and spring. (142 comments)

     

U.S. Indices
Dow -2.% to 34,899. S&P 500 -2.2% to 4,595. Nasdaq -3.5% to 15,492. Russell 2000 -4.2% to 2,246. CBOE Volatility Index +59.8% to 28.62.

S&P 500 Sectors
Consumer Staples -0.2%. Utilities -1.%. Financials -0.6%. Telecom -3.3%. Healthcare -0.9%. Industrials -2.4%. Information Technology -3.2%. Materials -2.3%. Energy +1.7%. Consumer Discretionary -3.6%.

World Indices
London -2.5% to 7,044. France -5.2% to 6,740. Germany -5.6% to 15,257. Japan -3.3% to 28,752. China +0.1% to 3,564. Hong Kong -3.9% to 24,081. India -4.2% to 57,107.

Commodities and Bonds
Crude Oil WTI -10.4% to $68.17/bbl. Gold -3.3% to $1,791.4/oz. Natural Gas +8.6% to 5.498. Ten-Year Treasury Yield +0.3% to 131.17.

Forex and Cryptos
EUR/USD +0.27%. USD/JPY -0.59%. GBP/USD -0.84%. Bitcoin -8.9%. Litecoin -12.4%. Ethereum -6.3%. Ripple -12.8%.

Top Stock Gainers
Longeveron Inc (NASDAQ:LGVN) +346%. Ispecimen Inc (NASDAQ:ISPC) +263%. Biofrontera Inc (NASDAQ:BFRI) +211%. Allied Healthcare (NASDAQ:AHPI) +71%. Pasithea Therapeutics Corp (NASDAQ:KTTA) +67%.

Top Stock Losers
Transdigm Group Inc (NYSE:TDG) -15%. Globant S.A. (NYSE:GLOB) -17%. Autodesk Inc (NASDAQ:ADSK) -21%. Okta Inc Cl A (NASDAQ:OKTA) -16%. Doordash Inc Cl A (NYSE:DASH) -18%.

Where will the markets be headed next week? Current trends and ideas? Add your thoughts to the comments section.

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