One of the biggest stock market tumbles of the day after Thanksgiving was caused by reports of a new COVID variant. It could all be for nothing, and that shows a dangerous trend in the US economy.
The stock market's movements may be too influential, as they can affect how corporations are run and how the government shapes economic policy.
On Black Friday, investors dumped stocks as news of the Omicron variant emerged in Africa. The S&P 500 dropped the most since February, while the Dow Jones Industrial Average shed more than 1,000 points. As traders sought less volatile assets, safe havens like Treasury bonds soared. As traders braced for another round of lock-ups, popular stay-at- home plays like Zoom Video, Peloton, and DocuSign jumped. Governments immediately instituted travel bans.
The selloff shows widespread concern that the strain will plunge the world into a new economic disaster.
The latest variant is not known. The strain has been found in several countries. Scientists can't study it comprehensively because there are so few genomic sequences available. It's not clear whether current vaccines protect against it or not, as experts fear the strain has a chance of making it more infectious.
The first headlines of the emerging Delta strain put a damper on the global recovery. The world economy is back on track for a full recovery after research showed that vaccines are effective against Delta, 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.
The stock market had a negative reaction to the weak jobs reports from Delta. When revised data showed that hiring had been less bad than first thought, public sentiment soured on an economy that's booming but doesn't quite feel like it.
Economic policy is not as fluid as markets are.
Richard Lessells, an infectious diseases specialist at the KwaZulu-Natal Research and Innovation Sequencing Platform, told The New York Times on Friday that the Omicron variant is similar to the Lambda andBeta variant in that it seems to evade immunity. The new variant is cause for concern, but the Friday response may not be the correct one.
Travel bans are more harmful than helpful in the long run according to research. The WHO urged governments not to adopt such restrictions yet, advice that was ignored by the US, the UK, and several others.
Scott Gottlieb, a prominent voice in US public health, criticized the White House's Friday travel ban, writing that "too much we don't know to impose economically, socially ruinous policies."
Gottlieb wrote that imposing harsh travel restrictions on affected countries is counter productive. Right travel bans can hurt more than help.
Friday's selloff makes sense. They try to front-run trends so they can profit from new developments at companies or the economy as a whole. Those who bet on global lock downs 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, investors who shifted cash to stay-at- home plays will most likely profit.
The public can be hurt by investors' reactions to fluid situations. Target and Walmart sank last week even though they reported good results. The companies were punished 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 told investors in an earnings call that fighting inflation is in Walmart's genes. 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 not driven by economic policy creators. Friday's huge market movement shows that even a small drop should be taken with a grain of salt. Barack Obama said that reality has a way of asserting itself.
