Broker Check

Why Have Stocks Been Dropping?

On December 21, 2021

The steepness of the declines in stocks over the past two days has elicited that question from clients, friends, and acquaintances, as following the Fed meeting from last Wednesday most assumed the market would melt up higher into year-end, yet quite the opposite has happened.

 The simplest answer to the question: “Why Have Stocks Been Dropping?” is the global surge in the Omicron variant is causing an increase in worries about the global economic recovery. But as is usually the case, the simplest answer is not the right one. Yes, Omicron is a headwind on markets as case counts explode higher, but there are several other, more crucial factors at play, during this pullback.

To demonstrate this point, I’ll note that a lot of the most sensitive COVID industries haven’t meaningfully declined over the past two days. Case in point, cruise line stocks (CCL/RCL) were up yesterday on CCL earnings and have gained more than 15% in December. Similarly, the airline ETF, JETS, is only marginally lower over the past two days and still up slightly month to date. Finally, even Live Nation (LYV) is little changed from the middle of last week thanks to yesterday’s bounce back. Point being, if this stock market drop were all about COVID, we would see greater weakness in these names.

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