Stock markets under pressure amid fears about the Omicron variant

U.S. stock markets ended the week in the red after a confusing employment report. Nonfarm payrolls grew by only 210,000 in November, far fewer than expected, but the unemployment rate fell to 4.2%. This is the best number we have seen since the start of the pandemic.

Furthermore, the World Health Organization said it has now detected the Omicron variant of Covid-19 in 38 countries. The news triggered a bout of uncertainty, with the CBOE Volatility Index hitting a session high in Friday trading, going above 35 for the first time in more than 10 months. Even if the WHO chief scientist urged people not to panic, the spread of this new variant dampened investor sentiment, at a time when the Federal Reserve seems ready to accelerate the timetable for the tapering of monthly bond purchases.

The S&P 500 fell 1.22% week-over-week, the Dow Jones Industrial Average slipped 0.91%, or 319 points, the Nasdaq fell 2.62% as tech was losing steam. It was an even tougher week for small cap stocks (Russell 2000 closing lower for the fourth-straight week: -3.86%).

European and APAC equity indices closed mixed. The MSCI EMU slid 0.49% after taking a nosedive last week (-5.19%) but the FTSE 100 bounced back (+1.11%). Japan’s Nikkei lost ground again (-2.51%) while the Shanghai composite extended its winning streak to 4 weeks (+1.22%).

Red lights flash almost everywhere  

Only two S&P 500 sectors managed to stay afloat. Utilities were the winner of the week (+0.98%), erasing last week’s losses while real estate edged up +0.06%. By contrast, communication services (-2.76%) tumbled as Facebook-owner Meta plunged -7.89% after Britain's competition regulator ordered the social media giant to sell animated images platform Giphy for competitive reasons. Consumer discretionary was also among the top losers (-2.36%), underpinned by the fall in Tesla stocks (-6.19%) amid continued selling by CEO Elon Musk. Financials were pushed lower (-1.98%) by a slump in banks as the U.S. Treasury yields continued to decline. Energy lost -0.79% amid declining oil prices for the sixth week in a row (WTI crude down -2.77%).

Treasury yields fall again

The yield on the U.S. benchmark 10-year T-note fell from +1.48% to +1.35% as investors flag concerns about the outlook for the economy. In Germany, the 10-year bond yield followed suit, dropping 5bps to -0.39%.

Unlike last week, corporate investment grade bonds gained +0.50% in Europe and +0.54% in the U.S., snapping a three-week losing streak. The same was true for high-yield bonds (+0.15% in Europe and +0.73% in the U.S.). Emerging debt bounced back too (+0.89% in local currencies) even though the dollar index was treading water. Elsewhere, gold slipped 1.07% (spot price at $1,783.29/Oz).

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