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Stocks jumped on Tuesday to extend gains from earlier this week, with volatility stemming from concerns about the Omicron variant at least momentarily abating.
The Dow advanced by about 1% just after the opening bell. A day earlier, the index ended higher by nearly 650 points, or 1.9%, as cyclical names that had underperformed in the recent session rebounded strongly. The jump marked the Dow’s best day since March. The S&P 500 and Nasdaq posted even more robust gains, with the latter gaining by nearly 2%.
More upbeat commentary and preliminary data suggesting the Omicron variant may not produce as severe of infections as previously feared helped boost markets over the past couple sessions. And elsewhere, renewed commitments by Chinese economic officials to focus on policies that would boost economic growth helped fuel global risk assets. Earlier on Monday, the People’s Bank of China cut its reserve requirement ratio for banks in the region, easing monetary policy at a time when many other global central banks including the U.S. Federal Reserve have been starting to move toward rolling back highly accommodative policies.
Dr. Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases (NIAID), told CNN on Sunday that “thus far it does not look like there’s a great degree of severity” to the Omicron variant relative to prior mutations of the virus. And pharmaceutical company GlaxoSmithKline said that preliminary data showed its coronavirus antibody treatment remained effective against the “full combination of mutations” present in the Omicron variant, according to a statement Tuesday.
The CBOE Volatility Index (^VIX) decreased to just below 24 as investors assessed the risks of the Omicron variant in light of new remarks. This brought the so-called “fear gauge” down from its peak of more than 35 on Friday, or its highest level since January.
“The level of volatility is somewhat logical here because a lot of this started prior to the Omicron variant really emerging. We knew that [Fed Chair Jerome] Powell was changing course in terms of his policy actions, he was speaking more hawkishly. Markets were already in the process of re-pricing a bit,” Jim Caron, Morgan Stanley Investment Management fixed income portfolio manager, told Yahoo Finance Live on Monday.
“I know after Thanksgiving [news about Omicron] came out and that created a pretty big volatile event, but I think the initial conditions where valuations were pretty full, we knew the Fed was starting to change course and starting to tighten financial conditions a bit, and that’s going to mean that asset prices are going to have to reprice,” he added. “You start to get somewhat of a perfect storm when you add a health risk.”
While technology stocks were poised to outperform on Tuesday, the move comes after weeks of these names lagging the broader market as expectations for a monetary policy shift increased in the U.S.
Alongside concerns of the Omicron variant, investors have also been ascertaining when and how robustly the Federal Reserve will move to accelerate its asset-purchase tapering program and raise interest rates from their current near-zero levels as inflationary pressures continue to mount. On Friday, the Labor Department is set to release its November Consumer Price Index (CPI), which is expected to show the fastest year-over-year rise in core consumer prices since 1991, at a 4.6% annual gain.
“Tech and growth stocks are the longest-duration assets, which means they’re going to be the most negatively impacted in valuation by any bump up in inflation which would take interest rates up,” Paul Meeks, portfolio manager for Independent Wealth Solutions Management, told Yahoo Finance Live. “But on the other hand, what the Fed is doing and is even talking about doing, which is going from accommodative to more restrictive monetary policy, is a known.”