Stocks advance as investors weigh Omicron risk; Bitcoin steadies

Stocks rose on Monday, with investors further weighing the potential impacts of the Omicron variant after last week’s volatile trading. Bitcoin prices edged marginally lower after a weekend sell-off.

All three major indexes were higher in intraday trading, led by the Dow with a jump of more than 600 points, or 1.8%, shortly after noon in New York. Small-cap stocks also outperformed, and the Russell 2000 added more than 1%. Tesla (TSLA) shares turned positive in afternoon trading after dropping into bear market territory earlier, following a Reuters report that the Securities and Exchange Commission had opened an investigation into the company’s SolarCity solar panel system.

Some encouraging developments about the latest coronavirus variant helped boost risk assets. Dr. Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases (NIAID), said during CNN’s “State of the Union” on Sunday that reports from South Africa have so far suggested the Omicron variant may not cause infections more severe than those caused by earlier variants.

“Thus far, though it’s too early to really make any definitive statements about it, thus far it does not look like there’s a great degree of severity to it, but we’ve really got to be careful before we make any determinations that it is less severe or really doesn’t really cause any severe illness comparable to Delta,” Fauci said. “But thus far the signals have been encouraging regarding the severity.”

Meanwhile, however, Moderna (MRNA) President Stephen Hoge told ABC on Sunday that there was a “real risk that we’re going to see a decrease in the effectiveness of the vaccines” currently available as the Omicron variant spreads. The vaccine-maker had also said last week it could have a COVID-19 booster shot designed to address the Omicron variant available as soon as March.

Bitcoin prices (BTC-USD) steadied and fell only marginally Monday morning after plunging over the weekend. The largest cryptocurrency by market capitalization sank by as much as 21% on Saturday, according to Bloomberg data, to fall to just above $42,000. Though no single obvious catalyst was behind the drop, some pundits attributed a combination of jitters about the Omicron variant, and anticipation for a faster asset-purchase taper by the Federal Reserve, to the volatility in the cryptocurrency. Prices hovered above $48,000 intraday on Monday.

The Fed’s next monetary policy moves, in the face of the dual concerns of rising inflation and now the Omicron variant, have become a central focus for investors. Fed Chair Jerome Powell said last week that it could be appropriate to “wrap up [its] purchases a few months early,” which has in turn led to speculation that at least one interest rate hike could come soon following the end of that program. Investors had initially been concerned about the specter of tighter monetary policy at a time when growth may already come under pressure due to the latest coronavirus threat. But with inflation rising at the fastest rate in at least three decades according to several major measures, the focus of the Fed right now has shifted to reigning in rising prices, according to a number of economists.

“For the Fed, the decision to taper more quickly is complicated — motivated more by inflation than by economic momentum and the labor market. A new wave of infections could certainly slow the recovery, but it could also impact prices,” Rubeela Farooqi, chief economist for High Frequency Economics, wrote in a note. “If the variant results in renewed and widespread restrictions — as it already has in some countries, — then supply chain disruptions are likely to intensify, putting even more upward pressure on price metrics.”

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2:24 p.m. ET: Microsoft lands title of Yahoo Finance Company of the Year

Technology juggernaut Microsoft (MSFT) has been named Yahoo Finance’s Company of the Year 2021, with the company extending a strong run of performance in its business and stock amid growing business and consumer adoption of its hardware and software offerings.

Microsoft shares have jumped 45% in the past one year, outpacing the S&P 500 and peers including (AAPL) and Amazon (AMZN). This run-up has sent its market capitalization above $2 trillion. And at least one analyst sees the stock could reach $3 trillion in the next six months.

“What we are seeing in the cloud, Microsoft is leading the way. I think that is what we have seen with the stock — it’s a re-rating as investors further understand just how this growth story is playing out. Our view is that this is a $3 trillion market cap company,” said Wedbush analyst Dan Ives.

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12:19 p.m. ET: Stocks extend gains, S&P 500 and Dow add more than 1%

The S&P 500 and Dow traded sharply higher in afternoon trading, while the Nasdaq joined the other two indexes in the green.

The utilities, financials and industrials sectors outperformed in the S&P 500 as investors bought cyclical stocks that had been beaten down in recent week amid renewed virus concerns. Health-care, information technology and communication services underperformed. In the 30-stock Dow, Walgreen Boots Alliance, Boeing and American Express were the biggest outperformers.

Crude oil prices also rallied, and U.S. West Texas intermediate crude oil futures gained more than 3% to trade back above $68 per barrel. The CBOE Volatility Index, or VIX , fell back near 29 after reaching as high as 35.3 on Friday for the highest level since January.

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10:23 a.m. ET: Yield curve is signaling market expectations for a return to ‘low growth, low inflation environment’: Strategist

While the Omicron variant served as the latest catalyst for the downward move in U.S. equity markets, some strategists suggested the market was already primed for such a move.

“Markets are assessing really the prospective slowdown in economic growth,” Alessio de Longis, Invesco Investment Solutions senior portfolio manager, told Yahoo Finance Live on Monday. “There has been a lot of focus on the Omicron virus as one of the catalysts for that prevailing view that we’re overdue for a slowdown. But to be honest, I think that was already in the cards.”

“Markets will really focus on Omicron as well as central banks’ price action and rhetoric,” he added. “The most relevant indicator in my mind is the shape of the yield curve, is the behavior of the long end. The long end of the yield curve has been rising steadily, the yield curve has been flattening in the face of hawkish rhetoric, in the face of higher interest. rate expectations in the near-term. That is signaling that the market expects growth to return to the low growth, low inflation environment that characterized the GFC.”

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9:34 a.m. ET: Stocks open mostly higher, shaking off last week’s volatility

Here’s where markets were trading Monday morning:

S&P 500 (^GSPC): +23.24 (+0.51%) to 4,561.67
Dow (^DJI): +336.57 (+0.97%) to 34,916.65
Nasdaq (^IXIC): -32.32 (-0.21%) to 15,046.07
Crude (CL=F): +$1.55 (+2.34%) to $67.81 a barrel
Gold (GC=F): -$3.80 (-0.21%) to $1,780.10 per ounce
10-year Treasury (^TNX): +3.6 bps to yield 1.377%

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9:09 a.m. ET: SEC launches probe into Tesla’s solar panel system: Reuters

The U.S. Securities and Exchange Commission is investigating Tesla (TSLA) following a whistleblower complaint that the electric-vehicle maker did not adequately disclose the fire risks of defects in its solar panel system to consumers and investors, Reuters reported, citing a letter from the agency. Tesla shares declined more than 1% in early trading.

Tesla acquired solar panel system-maker SolarCity in 2016. The complaint maintained that Tesla did not properly inform buyers that defective electrical connectors on the panel systems could cause fires, according to Reuters.

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