US futures jump as fears about Omicron COVID-19 variant cool after Friday’s massive stock sell-off

Stock trader New York coronavirus
US stocks looked set to rally on Monday. Spencer Platt/Getty Images
  • US futures rose Monday, after stocks tumbled Friday thanks to fears about the Omicron COVID-19 strain.
  • European shares also gained in early trading, along with oil and crypto, after Asian stocks fell overnight.
  • Investors may take heart from weekend developments, including signs that Omicron symptoms are mild so far.

US futures rose along with European shares Monday, as investors’ fears about the new Omicron coronavirus variant cooled somewhat, following Friday’s panic-driven sell-off.

S&P 500 futures were up 0.6%, Dow Jones futures were 0.4% higher, and Nasdaq 100 futures were up 0.8%, indicating gains at the start of trading later in the day.

In shortened trading Friday, the S&P 500 tumbled 2.27%, the most since February, as the discovery of the new Omicron strain raised the prospect of fresh lockdowns and travel bans. That sparked concerns about the impact on global economic recovery.

In Europe, the continent-wide Stoxx 600 rose 0.67% in early trading after plunging Friday. The UK’s FTSE 100 climbed 0.78%.

Asian stocks dropped overnight, having fallen less sharply on Friday. Tokyo’s Nikkei 225 closed 1.63% lower, while China’s CSI 300 fell 0.18%.

Monday’s rally came after a weekend in which scientists were racing to find out more about the Omicron variant, which was first discovered in southern Africa.

Investors may have taken heart from some developments, which included a South African doctor saying symptoms of the Omicron variant have so far been very mild, according to Reuters.

Pharmaceutical company Moderna’s chief medical officer Paul Burton also told the BBC’s “Andrew Marr Show” that large quantities of new, Omicron-adjusted vaccines could be ready in early 2022. “We can move very fast,” he said.

However, scientists are still working to discover whether Omicron, which is heavily mutated compared with other strains, is more severe and lethal. The World Health Organization said “more information will emerge in the coming days and weeks.”

Investors appeared to be treating the sharp sell-off as a buying opportunity on Monday, following the playbook that has worked out well this year. Even after the recent losses, major US equity markets have logged big gains, with the S&P 500 up 22% in 2021.

Lori Calvasina, RBC Capital Markets’ head of US equity strategy, said in a note she would not be surprised if Friday’s rout was the low point for stocks.

“We know how the COVID playbook ends — with buying the dip. The lessons of March 2020 and Fall 2021 are likely still fresh on many investors’ minds and may help to limit downside.”

Traders now expect the US Federal Reserve to raise interest rates more slowly than previously expected, penciling in the first hike for July rather than June.

“The current malaise should delay the immediate pressure on monetary tightening as central banks assess the potential economic damage from the new strain,” said Richard Hunter, head of markets at Interactive Investor.

Elsewhere in markets, oil prices rallied after tumbling Friday. Brent crude, the global benchmark price, was up 4.16% to $US74.57 ($AU105) a barrel, while WTI crude was 4.7% higher at $US71.33 ($AU100) a barrel.

Cryptocurrencies were recovering after dropping Friday, with bitcoin 5.5% higher at $US57,367 ($AU80,538) on the Bitstamp exchange.

Bond yields rose as investors moved away from the safe-haven assets in favour of equities. The yield on the key 10-year US Treasury note climbed 5.6 basis points to 1.541%. Yields move inversely to prices.

Despite the rise in stocks, analysts cautioned that many risks remain. Hunter said the global economic recovery is set for “an unwelcome detour” as the spread of Omicron causes countries to react strongly with new restrictions.

“However, the weeks ahead are fraught with danger for investors, with traders now likely to see any major updates associated with this new variant as a priority over most other economic data points,” said Joshua Mahony, senior market analyst at trading platform IG.