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Stock Market Today: November 29, 2021

Stock Market Today: November 29, 2021

William G. Ferguson | 11/29/2021

Before The Bell - As we return from the holiday-shortened trading week, most investors find themselves with little reason to feel festive, as Friday’s half-session of trading following the Thanksgiving holiday saw the Dow Jones Industrial Average, the NASDAQ Composite, the broader S&P 500 index, and the small-cap Russell 2000 drop 2.5%, 2.2%, 2.3%, and 3.7%, respectively. True, the losses were likely exacerbated by the light volume session, but investors were rattled by news of the spread of the COVID-19 Omicron variant (likely originated in South Africa) and the thought that it may slow the progress being made for the global economy. Reports of renewed lockdowns in Europe—which began early last week with news from Germany—spooked investors and prompted a flight to safety, with investors flocking to the fixed-income market. The yield on the 10-year Treasury note, which moves inversely to the price, fell sharply on Friday (from 1.64% to 1.48%). This morning, the equity futures are suggesting that the major averages will retrace a portion of those losses when the new trading week commences stateside.

 

On Friday, investors dumped their positions in stocks that benefited from the reopening trade. With fears about renewed lockdowns in Europe and the negative impact such may have on the global economy, investors exited the travel and leisure, energy, and many other industries that would be hurt by increased economic restrictions. The aforementioned retreat in bond yields also hurt banking and financial services stocks, as lower fixed-income yields would hurt the earning power of the banks. Elevated concerns about the Omicron variant and a possible slowdown in global growth led to a 13% slump in oil prices and a poor showing from energy issues. (Investors should note that OPEC+ nations are scheduled to meet on Thursday to discuss crude supply levels on Thursday.) Overall, there was a clear risk-off movement among investors, hence why the riskier small-cap sector suffered the biggest decline on a dour half-day session for equities.

 

So what is an investor to do? Our first recommendation is not to panic, as Friday’s decline was on light volume, which can often exacerbate the movements in the major indexes. But as we have said several times here over the last few months, especially with the market at or near record highs and susceptible to some profit taking on disappointing news (like we saw Friday), the most prudent investment strategy is to look at the stocks ranked 1 (Highest) and 2 (Above Average) for Safety by Value Line, which have historically fared relatively better than the broader market during periods of turbulence.

 

Taking a look at the week ahead, the investment community will be keeping close tabs on COVID-19 and the Omicron variant as it spreads around the globe. The new strain may cause some problems for less-vaccinated countries in both Europe and Asia, and it remains to be seen if the current vaccines will provide enough protection against it. This comes as supply-chain disruptions and bottlenecking in international trade continues to impact global output. Investors will also soon get a lot of economic data, with reports due on consumer confidence, private-sector payrolls, manufacturing and nonmanufacturing activity, and initial weekly unemployment claims. The headline report will come on Friday with the release of November employment and unemployment figures. That report, along with the issuance of the Fed’s Beige Book summation of economic conditions on Wednesday afternoon, will be closely watched by monetary policy decision-makers ahead of next month’s FOMC meeting. 

 

The Fed’s stance on monetary policy, the looming debt-ceiling negotiations on Capitol Hill (in which failure to come to an agreement would force a government shutdown), inflation concerns and related supply-chain disruptions, and the renewed fear of the COVID-19 Omicron variant are together forming a “wall of worry” for Wall Street, and this uncertainty may lead to a near-term spike in equity market volatility. Given this backdrop, investors may be best served by adding some quality names to their portfolios, which, as noted above, can be found among the issues ranked 1 and 2 for Safety by Value Line. The company’s stock-screening capabilities can make the potentially daunting task of identifying these stocks quite easy. For example, the mega-cap technology names offer the best combination of high-growth potential and safety, which also made them popular holdings at the height of the coronavirus pandemic last year.

 

Before the bell, the equity futures, as noted above, are indicating some bargain hunting, with the sectors and commodities that were punished on Friday recovering some in pre-market action. So far overseas the performance has been mixed. The main indexes in Asia finished lower overnight, likely the residual effect of Friday’s selloff in the United States, while the major European bourses are in rally mode, as trading moves into the second half of the session on the Continent. – William G. Ferguson

 

At the time of this writing, the author did not have positions in any of the companies mentioned in this article.

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