Some things to keep in mind as the Dow falls 1,000 points 📉
Many lessons have been learned over the past two years
The markets are selling off.
As of around 11:30 am ET, the Dow was down 1,032 points or 2.9%. The S&P 500 was down 106 points or 2.3%.
The major financial news outlets are attributing the selling to the emergence of a new coronavirus variant.
This rationale seems to make sense as Covid-sensitive stocks like airlines and hotels are leading the way down. Names include United Airlines (-13%), Carnival Corporation (-13%), American Airlines (-12%), Royal Caribbean (-11%), and Marriott International (-10%).
Meanwhile, stocks benefiting from staying at home and social distancing. Names include Zoom Video Communications (+7%) and Peloton (+4%). It’s worth noting that Moderna was up 28%, Pfizer was up 6%, and Clorox was up 3%.
While we’ve yet to understand what the spread of the new variant could mean, there are plenty of reasons why it’s too early to think about reducing your exposure to stocks.
Keith Lerner, chief market strategist for Truist Advisory Services, provided some good context in an email he sent out a short while ago:
…The pandemic and COVID variants remain one of the biggest risks to markets, and are likely to continue to inject volatility over the next year(s). It’s hard to say at this point how lasting or impactful this latest variant will be for markets.
Importantly, we have seen other COVID-19 variants spring up before that proved fleeting (for example, the lambda and mu strains were less problematic than initially feared). Consumers and corporations are also in a better position to cope with this uncertainty, having dealt with the pandemic for most of the past two years and have adapted. Moreover, Pfizer indicated that it could develop and produce a tailor made vaccine against a new variant in about 100 days.
Also, if this strand becomes more problematic, we could see central banks quickly ratchet back plans to tighten policy. This is not the base case, but something for investors to keep in mind…
While the current situation could prove to be very serious, investors have to remember what the world economy experienced and learned over the past year. Health officials, policymakers, business owners, and everyone else are much more prepared to respond to the spread of a deadly virus than they were two years ago.
For investors, one of the big lessons of the pandemic has been that it’s a bad bet to wager against corporate America’s capacity to evolve and adapt to challenges. Read more here.
Bear in mind that everyone was essentially blindsided by the pandemic when it first sent the world economy into lockdown during the spring of 2020.
And yet the economy and markets emerged stronger than ever just a year later.
All that said, no one should be surprised if the selling gets much worse before it gets better. That’s just part of the deal when you get into stocks. Read more here.
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