Global markets reeled ― with the Dow tumbling more than 900 points in its worst drop of the year― as word of a new coronavirus variant sparked fears it could derail the economy.
The sell-off marked a dismal end to a week filled with positive economic signals about the labor market and consumer spending, coinciding with Black Friday and the traditional start of the holiday shopping season. Retailers and travel-centric businesses were looking for some semblance of normalcy after last year’s pandemic-imposed slump.
“Markets are clearly speculating that a rapid spread of a more brutal Covid strain could once again derail the global economy,” Russ Mould, investment director at the investment firm AJ Bell, said in an email.
“Forget Black Friday; today has been renamed Red Friday” he said, a reference to the color of falling share prices.
The Dow Jones industrial average shed 905.04 points, or 2.5%, to end the week at 34,899.34. The S&P 500 erased 106.84 points, or nearly 2.3%, to settle at 4,594.62. The tech-heavy Nasdaq lost 353.57 points, or 2.2%, to close at 15,491.66. U.S. markets close early Friday because of the holiday weekend.
The declines followed reports Thursday of a new covid-19 strain detected in Southern Africa. On Friday, the World Health Organization declared it a “variant of concern” and dubbed it “omicron.”
The variant has a large number of mutations, the WHO said in a statement Friday, and preliminary evidence suggests it might be more infectious than other variants. The group asked member countries to step up their testing and reporting procedures, and called on individuals to wear masks, physically distance from others, and get vaccinated.
Shortly after U.S. markets closed Friday, the Biden administration announced it would restrict travel from eight countries in a bid to keep the virus out. The European Union, Britain, Japan and Israel made similar moves. At least one case of the new variant has been detected in Belgium, according to a health official there. And covid-19 cases in Germany have already been rising amid a surge that one official said is “more serious than at any point in the pandemic,” according to the Associated Press.
President Joe Biden said the drop in stock prices was to be “expected” because that tends to happen when coronavirus cases go up. “We don’t know a lot about the variant, except that it is of great concern,” he said, noting that he had met with Anthony S. Fauci, the top federal infectious-disease expert, and others about it.
The relative dearth of information about the new variant has some investors preparing for the possibility of a vaccine-resistant strain, analysts said. That’s led them to flee oil and commodities for so-called safe havens such as gold and bonds.
“We’ll no doubt learn more in the days and weeks ahead . . . but for now, fear of the unknown will weigh heavily going into the weekend and could carry over into next week,” said Craig Erlam, senior market analyst at the foreign exchange trading firm Oanda.
Investors have not forgotten how the delta variant rolled back months of progress earlier this year, analysts say, and are wary of losing the gains they have made since then. Wall Street has adopted a “sell first and ask questions later mentality,” said LPL Financial chief market strategist Ryan Detrick.
Friday’s sell-off was deep and global: Europe’s Stoxx 600 index plunged 3.7% while the German DAX tanked 4.2% and Britain’s FTSE shed shed 3.6%. Japan’s Nikkei dropped 2.5% and Hong Kong’s Hang Seng Index was down nearly 2.7%.
Travel-related stocks took a beating as British and German governments moved to limit travel from southern African countries. United Airlines stock shed 9.6%, while American Airlines and Delta declined 8.8 and 8.3%, respectively. Norwegian Cruise Line Holdings fell 11.4%, and Carnival Corp. was down 10.9%.
Oil prices also fell sharply on Friday, partially reversing a long upward trend in energy prices. Brent crude, the global benchmark, shed 10.75%, while West Texas Intermediate crude lost 12.6%.
The price of gasoline has been a key focus for the White House. Last week, Biden called on the Federal Trade Commission to investigate whether oil companies were improperly raising pump prices. On Tuesday, he authorized the use of strategic oil reserves to combat high prices.
On the flip side, investors poured into stocks that did well during last year’s relative lockdown. Zoom Video Communications and Peloton both climbed about 5.7%.
The virus news comes after a spate of positive economic news in the United States. The Labor Department reported that weekly jobless claims, a proxy for layoffs, plunged to the lowest level in more than 50 years. The Commerce Department estimated that retail sales jumped 1.7% in October. Many banks and economists upgraded their predictions for gross domestic product growth for the last three months of the year, including JPMorgan Chase, which revised its estimate to an annualized 7%, instead of 5%, and Morgan Stanley, which movedits forecast up to 8.7% from 3%.
Wayne Wicker, chief investment officer at MissionSquare Retirement, called the market reaction “overblown” because the medical community still has not presented firm conclusions about the new variant. It could rival the delta variant’s impact, or it could have a relatively small effect on the virus’ trajectory. In the meantime, he said, many investors are booking solid market gains from the past year and trying to hedge their risk.
“People will sell first and ask questions later . . . that’s natural when you’re up 27% on the year,” Wicker said, referring to the rate of return for a typical market-tracking index.
Markets should calm down as new information becomes available, said Michael Farr of the D.C.-based investment firm Farr, Miller & Washington.
“Investors hate to be surprised, particularly by things they don’t understand,” Farr said. “As more facts become known about this Omicron variant, Wall Street will calm down and prices will settle where they should.”
The Washington Post’s Felicia Sonmez contributed to this report.