By Jonathan Paglialunga, Director of Operations
Wall Street is displaying some concern with the increase in COVID-19 cases overseas amid potential European lockdowns due to their inability to contain the fourth wave. Market professionals are uneasy that an increase in cases could result in another pandemic winter which could be a key factor in reshaping the nation’s economic recovery.
This negative thought process is the reason that the Dow Jones Industrial Average closed down 1.4%. In addition, the S&P 500 was seen closing at a 0.14% loss. Surprisingly, the outlier, the NASDAQ, increased to 16,057, as a result of its composition of significant tech stocks that benefited from lockdown procedures.
According to George Ball, chairman of investment firm Sanders Morris Harris, he stated, “The possibility that COVID will be more serious and longer-lasting in terms of behavior and the economy is being reflected directly in the market today.” In addition, he explained, “The possibility that there could be another wave and another variant in the U.S. is weighing on the markets now. It’s not something people expected.”
Friday, Austria and Germany both announced that lockdown procedures are potentially on the table just after presenting new restrictions on unvaccinated people a day earlier. Germany is a large exporter so some form of lockdown can be damaging to countries like the United States.
With vaccination rates too low to reach herd immunity and an increasing number of breakthrough cases, there is concern that the U.S. might soon be facing another significant wave of the pandemic especially during the winter months as people are gathering indoors. According to Johan Grahn, head of ETF strategy at AllianzIM, “I think it’s just a prelude in Europe to what seems to be inevitable, and that’s what’s really rattling the markets here.”
In addition to the fear of another wave, there is Wall Street uncertainty over Joe Biden’s pick to lead the Federal Reserve for the next four years. The top two contenders are current Fed Chairman Jerome Powell and Fed governor Lael Brainard, who possess viewpoints of using the central bank in shaping the financial system in response to issues like climate change. Brainard is perceived as less likely to raise interest rates, which is the biggest tool in driving down inflation.
Megan Horneman, director of portfolio strategy at Verdence Capital Advisors, stated that a change in leadership in the world’s most powerful central bank during the middle of a rare pandemic could introduce a high degree of uncertainty.
In addition, adding to general uneasiness, investment professionals are concerned with how supply chain disruptions could test the durability of American businesses. According to Ball, “The risk of a new conflagration of COVID cases would further cripple the supply chain. It could reduce the willingness to re-engage in the job market on the part of millions of potential workers, and at the same time it might add further fuel to the inflation concerns.”
Only time will tell how much longer the world might have to endure the COVID-19 pandemic as well as how nations like the U.S. might react to changes in supply chains and whether these hurdles might ultimately affect the stock market and the subsequent economy.