Dow plunges 2.5% as new COVID-19 variant raises economic fears

Shares fell sharply on Friday, rattled by news of a new coronavirus variant which led to several countries introducing travel restrictions.

The Dow, which fell more than 1,000 points in the middle of the day, closed 2.5% lower at 34,899 – the worst trading day for the blue-chip index this year. The S&P 500 fell 2.3%, the biggest setback since February, to close at 4,594 and the technology-heavy Nasdaq lost 2.2% and closed at 15,491.

Investors were rattled off news about a COVID-19 variant discovered in five African nations that may be more contagious than previous varieties. Researchers warn that more data is needed to determine how contagious the variant is and how it responds to vaccines. The variant, whose technical name is B.1[ads1].1.529, has in recent days been discovered in Hong Kong, Israel and Belgium, according to media reports.

The World Health Organization has said the new strain, named “Omicron” after the Greek letter, is a variant of concern. In a statement on Friday, it noted that early evidence of the new strain “suggests an increased risk of reinfection,” the statement said.

“While headlines are alarming, researchers are still researching how contagious and serious it is, and whether current vaccines are effective,” analysts at TD Securities told investors in a research note. “Further evidence of dispersal in Europe and beyond is likely to weigh on markets and could lead to faster closures.”

On Friday afternoon, the United States restricted travel from seven countries in South Africa. The United Kingdom, France and Israel have canceled direct flights from South Africa and four surrounding nations, and the European Commission has proposed stopping all flights between the 27 member states and South Africa.

Investors sold travel shares, with Royal Caribbean Cruise Lines falling 13%, while United Airlines falling 10%. The price of Brent crude oil also fell sharply, losing 10% to fall to $ 72 per barrel.

“Sectors and countries most vulnerable to the pandemic (tourism, energy, etc.) have been hardest hit. We expect these patterns to persist in the short term as investors digest the implications of the new variant,” said Neil Shearing, chief economist at Capital Economics. said in a report Friday.

The extent to which the new strain is resistant to vaccines or more lethal than previous strains will determine how governments respond as well as any economic consequences, Shearing noted.

However, unlike previous tribes, Omicron comes to the fore at a time when the global economy is strained, he said. “Supply chains are already stretched. A virus-related increase in commodity costs, or the closure of ports, will exacerbate existing supply burdens and add upward pressure to commodity inflation,” Shearing wrote. Meanwhile, the potential for an infectious new virus strain could lead to more workers leaving the labor market, he added.

Such fears contributed to Friday’s sales.

“The new variant innovation has brought with it a mentality for sales first and asking questions later,” said Ryan Detrick, marketing strategist for LPL Financial.

The Associated Press contributed reporting.