U.S. stocks staged the biggest rally in nine months, with major averages climbing at least 2% on optimism that the Omicron coronavirus variant will not derail global growth. T-bills fell, sending two-year yields to their highest level since March 2020.
Tech stocks that led last week’s decline provided the pace for the rebound. The Nasdaq 100 index jumped 3%, an ETF that tracks new public companies jumped 5%, and small caps climbed 2%. The Standard & Poor’s 500 Index wiped out all the losses suffered after Jerome H. Powell’s hawkish tilt a week ago and was just 0.3% below its last close before the omicron variant rocked the banks. markets. The CBOE volatility index plunged five points to 22. The dollar fell and crude exceeded $ 71 a barrel in New York.
Risk assets are recovering this week after initial data showed that the increase in Omicron cases has not overwhelmed hospitals and China decided to expand support for the economy. Among the riskiest assets, a basket of unprofitable tech companies from Goldman Sachs Group Inc. jumped nearly 6% on Tuesday, recouping nearly half of last week’s losses.
“The mood in the market has been significantly more optimistic this week after several health experts around the world, including Dr Anthony Fauci of the United States, said Omicron symptoms have seemed milder so far. “said Fiona Cincotta, Senior Financial Markets Analyst at City Index. . “While it’s still early days, the encouraging news has prompted bargain hunters to act. Who would want to miss the possibility that a milder variant could speed up natural immunity to COVID? “
On the data front, the US trade deficit narrowed while third-quarter productivity fell. Private consumption was the main contributor to the most recent economic expansion in the euro area. UK house prices are at an all time high. And China’s exports grew faster than expected to hit a record high foreign demand and lower electricity.
Additionally, research has shown that a COVID-19 vaccine from GlaxoSmithKline and Medicago Inc. of Canada is effective against several variants of the disease. Congress also struck a deal to raise the national debt ceiling.
“This morning’s rally is fueled by the belief that the Omicron variant will not create many problems for the global economy and that China has promised measures to support economic growth,” said Matt Maley, chief strategist of markets for Miller Tabak & Co. “If these are the reasons the market has seen such a surge in volatility since Thanksgiving, we agree the worst is probably over and investors should come back to the market with both feet. .
However, stock markets could still experience further turmoil amid new restrictions aimed at stemming the spread of the Omicron and resurging geopolitical tensions. The threat of sanctions still looms if Russia invades Ukraine, following a call between the US and Russian leaders on Tuesday. China has threatened the United States with retaliation for its decision to declare a diplomatic boycott of the Winter Olympics. And Treasury Secretary Janet L. Yellen said the United States’ dependence on foreign supply chains has proven to be a vulnerability, reinforcing policies that can be seen as protectionist.
With possible headwinds ahead, George Pearkes, global macro strategist at Bespoke Investment Group, said the tech rally “looks really extreme.”
“It mostly looks like a countertrend after big negative catalysts and sentiment issues hit the market over the past two weeks, but I’m surprised it’s that big,” he said. declared.
– With help from Bloomberg writers Abigail Moses, Andreea Papuc, Shen Hong and Katie Greifeld.