The day following the Thanksgiving holiday is typically slow but with a positive bias, but that is not the case here on Friday. News of a new variant of COVID in South Africa hit suddenly, and there is a rush to impose new travel restrictions. So far, the variant has shown up in only four countries, but the importance of travel restrictions is now greatly elevated after what happened following the initial COVID strain.
The main concern about this new variant is that there are several mutations that may cause it to spread faster and make current vaccines ineffective. It will take substantial time for new vaccines to be developed.
The facts about the situation are still developing, but fear of the unknown is taking place and markets are sharply lower. Indications around 6:50 a.m. ET showed the S&P 500 trading down about 1.87%.
This latest news comes just as concerns have been growing about how the indexes have failed to reflect weakness in the broad market. There has been much debate about how the two-tiered nature of the action would resolve itself. Panic selling over a new COVID variant was not a scenario that many market strategists have considered.
Currently, the selling is across the board, but technical conditions vary wildly across sectors and groups, so we will need to watch to see how rotational action comes into play as this develops. Already we have the rotation back into "close the economy" names to some degree as vaccine makers and stocks such as Zoom Video (ZM) , Netflix (NFLX) and Roblox (RBLX) are trading higher. Oil and airlines are sharply lower.
This is a highly emotional reaction in the early going and market players are making the moves that reflect another economic shutdown. There have been a few scares recently about variants other than Delta that never took hold, but the fast response to this South African variant may help to prevent this from becoming a full-blown crisis.
Many market participants have been wondering when the indices would finally correct and reflect what has been going on in the overall market for a while. This isn't the preferred manner for it to occur, but it will happen in some form sooner or later. Our job now is to navigate the action.
I do not plan to do any significant selling into this open, but I will stay patient before putting more money to work. Don't forget that this is a half-day session and we close at 1 p.m. ET here on Friday.