U.S. stocks rebounded with equities around the world on optimism the omicron variant won’t derail global growth. Treasuries fell, sending two-year yields to the highest since March 2020.
The S&P 500 jumped 1.8% to the highest level since the emergence of the new virus strain upended markets Nov. 26. Technology shares that bore the brunt of last week’s selloff led the rebound, with retail favorites including GameStop Corp. jumping at least 3% and the Nasdaq 100 gaining 2.4%. Chinese shares led a rally in emerging markets after the nation’s policy makers moved to expand support for the economy. Bitcoin rallied, the dollar was flat and crude surged above $71 a barrel in New York.
Risk assets are recovering this week after initial data showed the surge in omicron cases hasn’t overwhelmed hospitals and as China’s moves help settle markets whipped by bouts of volatility. Technology stocks had sold off last week amid a combination of concerns about the variant and the Federal Reserve’s hawkish tilt.
“This morning’s rally is being fueled by the belief that the omicron variant will not create many problems for the global economy … and that China has pledged measures to support economic growth,” wrote Matt Maley, chief market strategist for Miller Tabak + Co. “If those were the reasons why the market has seen such a big increase in volatility since Thanksgiving, we’d agree the worst is likely over and that investors should jump back into the market with both feet.”
On the data front, the U.S. trade deficit narrowed while third quarter productivity fell. Private consumption was the largest contributor to the euro area’s most recent economic expansion. U.K. house prices hit an all-time high. And China’s exports grew faster than expected to a record on external demand and an easing power crunch.
Meanwhile, research showed that a Covid-19 vaccine from GlaxoSmithKline Plc and Canada’s Medicago Inc. was effective against multiple variants of the disease.
“In the wake of steep losses last week, the market mood has been notably more upbeat this week after several health experts across the globe, including the U.S.’s Dr. Anthony Fauci, have said omicron symptoms appear milder, so far,” said Fiona Cincotta, senior financial markets analyst at City Index. “Whilst it is still early days the encouraging news sparked bargain hunters into action. Who would want to miss out on the possibility that a milder variant could accelerate natural immunity to Covid?”
However, equity markets could still be in for further turbulence amid new restrictions to stem the spread of omicron and resurfacing geopolitical tensions. The U.S. and European allies are weighing banking sanctions if Russia invades Ukraine. China threatened the U.S. with retaliation against its decision to declare a diplomatic boycott of the Winter Olympics. And Treasury Secretary Janet Yellen said that U.S. reliance on foreign supply chains has proved a vulnerability, boosting policies that may be considered protectionist.
Elsewhere, China’s property debt crisis that’s been a drag on the economy continues to be closely monitored as China Evergrande Group’s grace period for some coupons ended with some bondholders yet to receive payment and S&P saying that a default looks inevitable. A group of Kaisa Group Holdings Ltd. bondholders also sent the company a formal forbearance proposal, designed to buy the developer some time and avoid a default.