Stocks fall on new COVID variant; Dow loses 905 points

NEW YORK (AP) — Shares fell Friday, with the Dow Jones Industrial Average briefly falling more than 1,000 points, as a new coronavirus strain first discovered in South Africa appeared to be spreading around the world. Investors were unsure whether the variant could reverse potentially months of progress in getting the COVID-19 pandemic under control.

The S&P 500 index fell 106.84 points, or 2.3%, to close at 4,594.62. It was the worst day for the Wall Street benchmark index since February.

The index was dragged down by everything from banks, travel companies and energy companies as investors tried to reposition to protect themselves financially from the new variant. The World Health Organization called the variant “highly transmissible”.

The price of oil fell by about 13%, the biggest drop since the start of the pandemic, amid concerns about another slowdown in the global economy. That, in turn, pushed energy supplies down. Exxon shares fell 3.5% while Chevron fell 2.3%.

The blue chips closed out 905.04 points and ended the day at 34,899.34. The Nasdaq Composite lost 353.57 points, or 2.2%, to 15,491.66.

“Investors will probably shoot first and ask questions later until more is known,” Oanda’s Jeffrey Halley said in a report. This was evident from the action in the bond market, where the yield on the 10-year Treasury fell from 1.64% on Wednesday to 1.48%. As a result, banks took some of the heaviest losses. JPMorgan Chase fell 3%.

There have been other variants of the coronavirus — the delta variant has devastated much of the US all summer — and investors, officials and the general public are nervous about each new variant spreading. It’s been nearly two years since COVID-19 emerged, killing more than 5 million people around the world so far.

Cases of the new variant have been found in Hong Kong, Belgium and Tel Aviv, as well as major South African cities such as Johannesburg.

The economic effects of this variant were already being felt. The European Union and the UK both announced travel restrictions from southern Africa on Friday. After the market closed, the US also imposed travel restrictions on those coming from South Africa, as well as seven other African countries.

Airline shares sold out quickly, with United Airlines falling 9.6% and American Airlines falling 8.8%.

“Until recently, COVID had seemingly been put in the rear-view mirror by the financial markets,” Douglas Porter, chief economist at BMO Capital Markets. “At the very least, (the virus) will likely continue to throw sand in the gears of the global economy in 2022, limiting recovery (and) keeping kinks in the supply chain.”

Even Bitcoin got caught up in sales. The digital currency fell 8.4% to $54,179, according to CoinDesk.

In Nantucket, Massachusetts, where he is spending a holiday weekend, President Joe Biden said he was not worried about the market’s decline.

“They always do when something on COVID (that) comes up,” Biden said.

One sign of Wall Street’s fear was the VIX, the measure of market volatility sometimes referred to as the “fear meter.” The VIX jumped 53.6% to a value of 28.54, the highest value since January before the vaccines were widely distributed.

Fearing more lockdowns and travel bans, investors moved money into companies that largely benefited from previous waves, such as Zoom Communications for meetings or Peloton for home fitness equipment. Shares of both companies rose nearly 6%.

The manufacturers of vaccines against the coronavirus have been among the biggest beneficiaries of the emergence of this new variant and the subsequent response from investors. Pfizer shares were up more than 6%, while Moderna shares were up more than 20%.

Merck shares, however, fell 3.8%. While US health officials said Merck’s experimental treatment of COVID-19 was effective, data showed the pill was not as effective at keeping patients out of the hospital as originally thought.

Investors are concerned that the supply chain problems that have been affecting global markets for months will worsen. Ports and freight yards are vulnerable and can be closed by new local outbreaks.

“Supply chains are already stretched,” said Neil Shearing, an economist at Capital Economics in London. “A new, more dangerous wave of virus could cause some workers to temporarily leave the workforce and prevent others from returning, exacerbating the current labor shortage.”

The variant also puts more pressure on central banks, which are already faced with a dilemma: whether and when to raise interest rates to counter rising inflation. “The threat of a new, more serious strain of the virus may prompt central banks to delay plans to raise interest rates until the picture becomes clearer,” Shearing said.

Stock trading on the Friday after Thanksgiving is usually the slowest day of the year, with the market closing at 1 p.m. Eastern. However, the volume on Friday was much higher than it would normally be for a short vacation day. About 3.4 billion shares traded on the New York Stock Exchange, which is only modestly less than the 4 billion shares traded on an average day.

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Wiseman reported from Washington.