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Stock market rebounds on hopes Omicron may not be as bad as feared

Dr. Fauci on new variant of concern Omicron
Dr. Fauci on new variant of concern Omicron 04:31

Stocks rebounded on Monday as investors looked for clues about the new coronavirus variant, dubbed Omicron, and just how much damage it may do to the economy.

The S&P 500 recovered more than half its drop from Friday, rising 1.3% to close at 4,655. The Dow gained 230 points, or 0.7%, to close at 35,135, while the Nasdaq rose 1.8%.

Bond yields and crude oil also recovered chunks of Friday's knee-jerk reaction to run toward safety and away from risky investments.

Still, while the market was steadier, it didn't return to the full-on rally it had been on before the discovery of the Omicron variant.

European stocks also rose. Benchmarks in London, Frankfurt and Paris had gained by midday. Stock indexes in Shanghai, Tokyo and Hong Kong ended lower, though losses were smaller than Friday's fall, sparked by reports that the new COVID-19 variant, first spotted in South Africa, appeared to be spreading around the globe.

"The potential for a less deadly form of the virus does appear to provide some respite to the risk-off sentiment dominating Friday's trade," said Joshua Mahony, senior market analyst at IG. "However, the weeks ahead are fraught with danger for investors."

Omicron COVID variant threatens U.S. recovery... 07:22

Monday's rebound comes after stocks on Friday marked their biggest daily loss since February as investors were spooked by the new variant, which some scientists are concerned could prove to be more contagious or deadly than earlier varieties. On Friday, the S&P 500 fell 2.3%, while the Dow lost 2.5% and the Nasdaq Composite retreated 2.2%.

Airlines rebound

Last week, investors sold banks, energy and airline stocks and shifted money into bonds and other safe haven assets. But that pattern reversed Monday: IAG, owner of British Airways and Spanish airline Iberia, jumped 4.2%, while United Kingdom discount carrier Easyjet rose 3.9%.

In the U.S., the travel and energy sectors, as well as companies forecast to thrive when the pandemic loosens its grip — such as computer chip makers — led the bounceback Monday, with Wall Street's faith in an emerging global economy seemingly reinvigorated.

"[E]ven as we all nervously await further information on this latest variant, investors should recognize that pandemic waves should have a diminishing impact on the economy," David Kelly, chief global strategist at JPMorgan Funds, said in a note to investors. "Many people have simply mentally moved on from the pandemic and will not accept further restrictions on their activities ....  Others have adapted their lifestyles to be very efficient even in pandemic conditions, conducting business over zoom, buying online and wearing masks into grocery stores."

He added, "All told, even if Omicron causes another pandemic wave, it is more likely to slow rather than interrupt a currently rapid global economic recovery."

The World Health Organization called Omicron "highly transmissible," but it was unclear whether it is more dangerous than earlier variants.

Vaccine development

Pfizer said last week that it could produce a new vaccine to target the Omicron variant in about 100 days, or just over three months. Moderna and Johnson & Johnson said they are testing existing vaccines' effectiveness against the new strain.

Governments imposed new travel controls, fueling investor fears about possible setbacks in containing the pandemic that has killed more than 5 million people since the first cases arose in late 2019.

U.S. bans travel from African countries 01:22

The new variant was found as far afield as Hong Kong, Belgium, Denmark, the Netherlands, Australia, Portugal and Israel. The European Union, the United States and Britain imposed curbs on travel from Africa. Israel banned entry by foreigners, and Morocco suspended all incoming flights for two weeks.

The emergence of Omicron might complicate planning by central banks that are deciding when and how to withdraw stimulus efforts that are credited with boosting stock prices.

Investors were rattled last week when notes from the Federal Reserve's October meeting showed officials said they were ready to consider raising interest rates sooner than planned in response to higher inflation. The Fed previously said its first rate hike might not come until late 2022.

In energy markets, benchmark U.S. crude surged $3.41 to $71.45 per barrel in electronic trading on the New York Mercantile Exchange, rebounding from Friday's $10.24 plunge. Brent crude jumped $3.26 to $75.98 per barrel in London.

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