Select Page

On November 15 in my post on what’s priced in and what’s not, I noted that an upsurge in Covid infections this winter wasn’t priced in. And that evidence of a new wave from Europe where infection rates have headed higher in what might be a preview for the winter in the United States could send stock prices lower.

Well, yes indeedy. That exactly what happened today after the Austrian government announced a full lockdown starting on Monday, in response to surging cases of COVID-19. The lockdown will include both those vaccinated and unvaccinated, it will last for 10 days minimum, but could be extended for 10 days further. The fear is that Germany, which is battling its own higher rates of infection, is next.

“The news is hitting European markets hard this morning as fears mount that the virus and restrictions will spread across the continent again,” Jim Reid, chief economist at Deutsche Bank told Bloomberg, adding that “the curveball might be the U.S.” given lower rates of vaccination domestically than in Europe. “So although all the headlines are in Europe at the moment, will the U.S. be more vulnerable than many European countries over the course of the full winter? Recent history suggests the United States has have a higher bar for economic restrictions related to covid but it also has a lower vaccination rate than their European peers,” he added.

Today closed lower on those fears. The Standard & Poor’s 500 index dropped 0.14% and the Dow Jones Industrial Average fell 0.75%. The small cap Russell 2000 was down 0.90%.

The exception came in technology stocks where the NASDAQ Composite gained 0.40% and the NASDAQ 100, home of the biggest tech stocks, gained 0.55%.

We’ve seen this market before. Fears of rising rates of infection and potential restrictions on travel and business sent travel stocks such as United Airlines Holdings (UAL) lower (down 2.71%) and hit retailers as well with Macy’s (M) off 7.17% at the close.

Technology stocks, on the other hand, by and large moved higher with Apple (AAPL) up 1.70%, Nvidia (NVDA) ahead 4.14%, Meta Platforms (FB) up 1.95%, and Synaptics (SYNA) higher by 1.66%.

The logic, again, is that if an upsurge of infections leads to restrictions that reverse the gains in the “Re-Opening” economy, then you don’t want to own Six Flags (SIX) down 4.14% or Carnival (CCL) down 2.24% because their revenue will get hit hard by another wave of the Pandemic, and you do want to own Adobe (ADBE) up 2.59% and Tesla (TSLA) up 3.71% because these companies can grow revenue even in the fact of Pandemic restrictions.

Investors were already inclined to favor technology stocks in the remainder of 2021 because they can outgrow inflation.

The Covid-19 news from Europe just re-enforces this inclination.

I’d expect to see a bigger trend toward technology shares as the Covid-19 news from Europe gets worse over the next few weeks.