Stocks fall as investors try to gauge Omicron risk, ongoing supply chain issues

Yahoo Finance's Julie Hyman, Brian Cheung, and Brian Sozzi run down markets' ongoing reactions to the Omicron variant as investors decipher what this could entail for supply chains.

Video Transcript

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JULIE HYMAN: Good morning. It is 9:00 AM on Tuesday, November 30. This is "Yahoo Finance Live." I'm Julie Hyman along with Brian Sozzi and Brian Cheung. Let's take a look at markets this morning. Because we have a bit of a recovery yesterday, but now things are turning down once again this morning. Futures though not seeing as much of a decline, perhaps as they were earlier. The NASDAQ futures down just about a 1/5 of 1%. S&P futures off a little more than half of 1%. Dow futures taking it the worst this morning, off by 3/4 of 1%.

The Fed crosses the Omicron. Jay Powell set to testify before the Senate Banking Committee today after yesterday afternoon Warning that the new COVID variant could threaten the economic recovery. The global public health system braces itself anew. We'll discuss whether the measures being taken, travel bans, vaccine updates, are the right ones to tackle the new variant? And changing names at the top. Twitter gets a new CEO and Facebook's ticker change gets delayed. We'll get perspective on how to trade large-cap tech with veteran analyst Mark Mahaney.

But first, I've got to talk about what's going on in the markets this morning and also what was happening yesterday. Of course, Monday, just to rewind a little bit because of concerns-- or I should say, last-- last Friday, we were seeing a steep decline in markets. Yesterday, Monday, we saw recovery and then going back down again. And guys, I know a lot of market participants are sort of, pointing to some commentary out from the Moderna CEO, as well as co-founder about, perhaps the time it will take to develop some sort of, vaccine specifically to target the Omicron variant.

But it doesn't seem to be that materially different from what was being said yesterday. Whatever the case, we're seeing this sell off resume this morning and we're seeing also bond yields head lower, Brian Sozzi.

BRIAN SOZZI: As it should. Because you now had a complete change in market focus. About two weeks ago, everybody was focused on the potential for raising rates next year, pulling back on the tapering program which Brian, of course, can-- can talk about. But now you're having a news driven market here. And I think a reminder here, this morning that any headline on this new variant or other ones that may pop up or likely to hit stocks here, which-- let's keep in mind are not too far removed from record highs.

And I was looking this morning in the pre-market here for some-- some groom in the green in the pre-market, I can't find any. I'm seeing some relative out-performance in some of those software names like a Salesforce, but by and by and large right now I know, we saw that that relief early yesterday. By and large, we're in a market that is going to shoot first and ask questions later.

BRIAN CHEUNG: Yeah. And I think to Brian's point, it definitely does underscore the sensitivity of this market. I was saying this yesterday in the morning is that until the science really comes out about exactly what the risk is of the spread but also severity of this omicron variant, we won't really get any sort of, reduced volatility in the markets, seeing these types of 304, 100 point, Dow up Dow down days, I think it's going to be very common until, maybe a few weeks from now, perhaps we get more clarity on exactly what the health implications of this first primarily epidemiological phenomenon is going to be.

But I think it also speaks to the sensitivity of markets to other stories that were happening before the Omicron variant as well. And I think that's one reason why it's a plug. Of course, the Federal Reserve at 10:00 AM today when they do have that Senate Banking Committee hearing with both Janet Yellen, the Treasury Secretary, alongside Fed Chairman, Jay Powell, there could be a lot more Market sensitivity to anything that the Fed chairman says with regards to how they're viewing the Omicron variant. Very interesting to see Fed watchers, kind of, trying to grapple with what the implications are for the Omicron variant on Fed policy.

Because on one hand, it could be the case that with these downside risks you want to keep policy more dovish or maybe pulled back on trying to taper faster as maybe some had speculated headed into last week. But then on the other hand of things, maybe this actually exacerbates the inflationary supply chain issues that would create a bigger inflation problem that the hawks might want to use as an excuse to further accelerate the taper. So it's, kind of, both of those arguments in both direction. We'll see where Jay Powell lands on that argument in about an hour or so.

BRIAN SOZZI: And-- and right, Brian, let's just highlight here. This is one of the-- I think one of the biggest problems with this buy the dip mentality that a lot of folks in this market continue to have. I've seen a lot of strategists come out here over the past 48 hours saying, just go back out there and buy this declining stocks. But you could be headed into really turbulent waters here, at least from a narrative standpoint, where you have high levels of inflation as Jerome Powell mentioned in the release of his opening statements yesterday. He had high levels of inflation that aren't going anywhere anytime soon. And the Fed that may have to fight this inflation, whether it's with one rate increase next year or just staying the course, with a taper in addition to all these new-- all this news on the COVID variant. I mean, that is a hard backdrop to come in here and buy this dip, Julie.

JULIE HYMAN: I just want to say one thing about supply chain issues. Which is we talk a lot about the ships off the coast of California but also we have to keep in mind the origins of the goods that are being shipped via ship. And that is mostly Asia, right? So China still has a zero COVID policy. We've seen a lot of these factory shutdowns in Vietnam that have affected the supply chain. And so those areas in particular could be vulnerable to more of at the source types of supply chain issues. The other thing I just want to mention here guys, I want to rewind a little bit back to the summer, to the early summer, right?

Because I seem to recall-- and here are stocks at that time. I seem to recall when Delta was first rearing its head, a lot of investors, sort of, shrug their shoulders. You remember that? They didn't care. We saw stocks really remain resistant to Delta headlines initially until it really started to gain steam. And the focus kind of switched to inflation in what we were seeing there. And it feels this time, like, a couple of things. First of all, yes, stocks are still near records. And so that's part of it, right?

Are we seeing more vulnerability in terms of the valuation in where stocks are? People looking for a reason to sell and take profit on the year that they have had going into year end. That could be one element. Another element could be, a once bitten, twice shy, situation, where people said, well, maybe we didn't take Delta seriously enough. Now even though it's very early and we don't know the full scope of the threat here, we're going to you know, like you said before, sell-- sell first and ask questions later. Brian Cheung, looks like you-- you're get in.

BRIAN CHEUNG: Yeah. Now I was going to say, I think one interesting point though, is that the variant just wasn't a story for investors. I would say over the course of the summer that was when cases were really low. And people were looking at those vaccine numbers and saying, look, at least here in the United States we have gotten past that. Which meant that the bigger story for the markets, at least over the last few months was inflation, inflation, inflation. We saw companies have no problem being able to meet on their margin expectations, at least, through the last earnings season. But I think that underscores why, you know, there's this big shift back towards the variants here and people remembering, like, hey, actually reminder, this is still a health emergency first.

That's what's going to be dragging markets down. And I just kind of, want to call attention to the fact that, that inflationary story also is not going to be the primary story for any sort of, Fed policy change as well. I want to read you the quote from the prepared testimony that Jay Powell is going to present in about an hour on quote, "The recent rise in COVID-19 cases and the emergence of the Omicron variant pose downside risk to employment, and economic activity, and increase uncertainty for inflation. Greater concerns about the virus could reduce people's willingness to work in person, which would slow progress in the labor market and intensify supply chain disruptions." And again, reminder, it's not just inflation, the labor market story is going to be very critical for this as well.

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