Forget reopening. The new COVID variant has 'stay-at-home' stocks rebounding.

2 months ago 19
zoom video conferencingTwo professors from the University of California, Berkeley use Zoom to teach their students through an online course.

Reuters/Nathan Frandino

Remote work and vaccine stocks rallied in Friday trading as traders bet on the new COVID variant to spark fresh lockdowns. The rest of the market slumped the most all year, overshadowing strong 4Q forecasts and data showing a budding boom. It shows the "stay at home" trade is suddenly back on, and reopening is in doubt yet again.

With the ink barely dry on news of another COVID strain, Wall Street is already betting big on another round of lockdowns.

The new variant of COVID discovered in Africa has quickly revived worries of another virus wave, as experts fear its many mutations could make it more infectious — and potentially vaccine-resistant. The variant, named B.1.1.529, has already been found in South Africa, Botswana, and Hong Kong. The world economy had only just seemed to put the Delta wave in its rearview before this new strain, which stands to freeze the global recovery in its tracks all over again.

Investors are already hedging for more economic pain. Shares of popular "stay-at-home" stocks rebounded on Friday as traders dumped reopening strategies and braced for new lockdowns. Telework picks Zoom Video and DocuSign bounced as much as 11% and 6%, respectively. Peloton shot nearly 8% higher. Vaccine plays including Pfizer, Moderna, and BioNTech all soared as well.

The rallies are even more pronounced when compared to the rest of the market. The Dow Jones Industrial Average tumbled as many as 1,000 points, or about 3%, in Friday trading, while the S&P 500 fell 2.2% at intraday lows. The session is on track to be the market's biggest single-day decline in 2021, though the Friday session is set to end early due to the Thanksgiving holiday.

Stocks aren't the only assets plummeting on fresh lockdown fears. Brent crude oil slid below $75 per barrel for the first time since September. The plunge marks a stark reversal from the price jumps seen earlier this week. The drop signals traders are betting on new lockdowns to crimp global gas demand.

The selloff comes as the US recovery accelerates and banks forecast booming growth in the fourth quarter. Indicators for consumer spending and jobless claims have returned to pre-pandemic levels, and the labor market is on its way to a complete recovery. But the market's massive Friday selloff doesn't just signal the recovery is slowing; it also means the new variant is threatening reopening itself.

From reopening to renewed lockdowns

Traders' bearish outlooks have already materialized in some countries. Austria and Slovakia imposed new lockdown rules as their respective case counts rebound. Belgium established a four-days-a-week telework mandate for everyone except essential workers. The Netherlands is forcing bars and restaurants to close at 8 pm, and the UK has already blocked flights from six African countries to lower the odds of the new variants' transmission.

The new restrictions echo those put in place at the start of the pandemic and at the onset of the Delta strain's spread. Lockdowns swiftly halted economic activity and dragged economies into self-inflicted recessions. Vaccines paved the way for reopenings, but COVID variants risk repeating the cycle and keeping countries from fully healing.

To be sure, it's too early to tell whether the latest strain will prompt widespread lockdowns. The World Health Organization has said there are less than 100 genomic sequences of the new variant available, meaning it will take some time to study its differences. Existing vaccines could protect against the strain like they do against Delta, or they could be rendered useless.

Dr. Anthony Fauci has said he wants to see more research on the strain before recommending new policies. The WHO and South African authorities are set to meet on Friday to discuss the variant.

The market fallout also comes after stellar gains in recent weeks. The S&P 500 sat near record highs when the market closed on Wednesday. With equities already boasting such lofty valuations, any negative development was likely to spark profit-taking.

Still, the magnitude of the Friday slump shows investors already bracing for the worst. To them, news of the latest variant means a return to remote work, a need for new vaccines, and that reopening is now on hold. The homebody economy may have months or years to run yet. 

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