Stock futures slumped in trading early Tuesday and were reversed from a rebound on Wall Street as investors reassessed the risks associated with the new Omicron Covid variant.
Futures on the Dow Jones Industrial Average fell 415 points, or 1.18%. S&P 500 futures fell 0.78% and Nasdaq 100 futures fell 0.4%.
The reversal came after Moderna CEO Stephane Bancel told the Financial Times that he expects existing vaccines to be less effective against the new variant. Bancel told CNBC on Monday that it could take months to develop and ship an Omicron-specific vaccine.
The overnight action followed a broad-based comeback, with the S&P 500 rising 1.3%, with all 11 sectors posting gains. Key averages rose to session highs on Monday after President Joe Biden said economic bans are currently off the table and there will be no new travel restrictions. The blue chip Dow ended the day with more than 200 points.
“We remain invested for the time being as a new virus strain and the European COVID surge affect risk sentiment,” said Jean Boivin, head of the BlackRock Investment Institute, in a statement on Monday. “Any delay in the powerful restart now means more later.”
The new variant of Covid, first discovered in South Africa, has now been found in more than a dozen countries, causing many to restrict travel. The World Health Organization described the Omicron strain as a “worrying variant” on Friday as the Dow lost 900 points and suffered its worst day since October 2020.
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Covid symptoms in connection with the Omicron variant were described as “extremely mild” by the South African doctor who first sounded the alarm about the new variety. Still, WHO said it would take weeks to understand how the variant could affect diagnostics, therapeutics and vaccines.
Federal Reserve chairman Jerome Powell believes the Omicron variant is jeopardizing the central bank’s mandate to achieve stable prices and maximum employment, he said in a comment he plans to convey to Senate lawmakers on Tuesday.
The CBOE volatility index, also known as the VIX or Wall Street Fear Indicator, fell during Monday’s rally but still stayed above 22. The indicator rose once 10 points to above 28 on Friday.
“This week will be insightful to see if the investor buy-the-dip approach is still in play or if the markets are more prone to a more pronounced pullback,” said Mark Hackett, director of investment research at Nationwide.