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Dow drops more than 400 points as omicron fears seize global markets

Surging cases and waves of cancellations and travel restrictions are spooking investors ahead of the holidays

Traders work at the New York Stock Exchange in Manhattan. The cloud of uncertainty tied to the omicron variant of the coronavirus is dampening what otherwise was a rosy period for markets. U.S., Asian and European indexes were sharply lower Monday. (Andrew Kelly/Reuters)
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Global markets reeled Monday as the omicron variant hit investors with a dose of sad deja vu in the form of renewed lockdowns, as well as business and travel restrictions that threaten to imperil the economic recovery.

The Dow Jones industrial average tumbled 433.28 points, or 1.2 percent, to close at 34,932.16. The S&P 500 index fell 52.62 points, or 1.1 percent, to settle at 4,568.02. The tech-heavy Nasdaq shed 188.74 points, or 1.2 percent, to end the session at 14,980.94.

European markets were red across the board, with the benchmark Stoxx 600 index falling 1.4 percent and Germany’s DAX sliding 1.9 percent. The mood was also grim in Asia: Japan’s Nikkei slumped more than 2.1 percent, China’s Shenzhen fell 2 percent, and Hong Kong’s Hang Seng Index slid 1.9 percent.

With omicron now in at least 89 countries and almost every U.S. state, and the World Health Organization signaling that this new coronavirus variant could have a “substantial growth advantage” over the delta variant, it’s beginning to look a lot like 2020: The Netherlands announced a return to lockdowns until mid-January except for essential businesses, while Germany, France and Austria have enacted varying degrees of travel restrictions. Surging caseloads are hobbling businesses and causing further supply chain disruptions.

And the postponements and cancellations are piling up: The World Economic Forum delayed its annual summit in Davos for the second year in a row. The NHL, the NFL, the NBA and the Premier League have rescheduled scores of games as teams struggle to keep the coronavirus out of their locker rooms. In New York City, Broadway shows including “Hamilton” and “Mrs. Doubtfire” have canceled performances in the past week, while the Rockettes dropped their remaining Christmas shows at Radio City Music Hall.

Investors fear that the resurgence will imperil the already fraught economic recovery, just days after the Federal Reserve announced that it would move up the timeline for interest rate increases in an effort to combat surging inflation. Meanwhile, the apparent unraveling of President Biden’s “Build Back Better” plan — after Sen. Joe Manchin III (D-W.Va.) said over the weekend that he “just can’t” support it — prompted Goldman Sachs to lower its U.S. growth forecast for 2022.

“We’ve seen this story happen before on the health front,” said Wayne Wicker, chief investment officer at MissionSquare Retirement. “Every time we seem to get an acceleration and a new variant, the knee-jerk is for the markets to decline by at least 5 percent, only to rebound sometime later as that variant dissipates in terms of severity.”

Bellwethers such as Caterpillar and Boeing shed more than 2.1 percent Monday, while Moderna’s stock fell nearly 6.3 percent.

Omicron’s cloud of uncertainty is dampening what was otherwise a rosy period for markets. Despite the day’s sell-off, the S&P 500 remains up more than 20 percent for the year, according to MarketWatch, while the Dow and Nasdaq are both up more than 15 percent. The rout is also coming at a time of year that can historically either be bullish or volatile as trading volumes thin out.

“The Santa rally may elude us this year after an impressive pre-Christmas rebound following the initial omicron shock,” Craig Erlam, senior market analyst with OANDA, said Monday in comments emailed to The Washington Post. “Given the amount of downside risks going into the new year, it’s hardly surprising to see investors adopting a more cautious approach as they log off for the holidays.”

Oil markets were walloped as travel reservations plummeted and fears of a broader slowdown grew. West Texas Intermediate crude, the U.S. benchmark, sank 3.1 percent to around $68.66 a barrel. Brent crude, the global benchmark, shed 2.1 percent to $71.99.

“If people aren’t flying, driving or manufacturing, oil demand will slump and OPEC+ will be forced to tighten the taps once again,” Danni Hewson, financial analyst with AJ Bell, said in commentary Monday. “The oil price has bounced back a little, but there is a worry that any meaningful slowdown in production could put the global economy right back where it was a few months ago, desperate for supply and struggling to cope with rising prices.”

Pavel Molchanov, an energy analyst with Raymond James, said the oil sell-off was primarily a matter of “sentiment over substance” as investors continued to react to omicron-related headlines.

“In this sense, equities and commodities alike are reflecting the global risk-off trade that is caused by COVID’s wintertime worsening,” Molchanov told The Post in an email.

Bond yields plummeted as investors flocked to safer assets, with the yield on the 10-year U.S. Treasury note slipping 0.27 percent. Bond yields move inversely to prices.