The Stock Market Is Falling Because Covid Fears Are Back - Barron's

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Dr. Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases, speaks during a White House press briefing.

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It’s a risk-off Friday, and there’s only one thing that can cause stocks to sell off these days: Covid-19.

The stock market appears to be taking its cues from Dr. Anthony Fauci, who spoke at a press briefing on Thursday afternoon. The good news: Fauci noted that health-care officials are tracking virus mutations, but that the vaccines look like they work against the new variants.

“From the reports we have literally as of [Thursday], it appears they will still be effective,” Fauci said.

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The problem: It might not stay that way. Everything is happening fast and gathering good data, reviewed by scientists, takes time. Fauci’s bottom line is fairly simple: Speed up vaccination efforts because viruses don’t have a chance to mutate if fewer people have them.

Vaccine rollouts continue to progress at a snail’s pace, and just a small percentage of the populations in the U.S. the U.K., and Europe have gotten their shots.

The Dow Jones Industrial Average, which had gained 1.9% in 2021, looks set to open down more than 200 points Friday, while the 10-year Treasury yield has fallen to 1.087% as investors flock to the safety of bonds.

Time will tell if it’s just a dip to buy—or the start of something more frightening.

—Al Root

*** Examine the wealth gap and how to address inequities in banking, housing, education, health care and more at a Barron’s event Jan. 26-27. Speakers include Cisco’s Chuck Robbins, education expert Arne Duncan and Mastercard’s Marla Blow. Sign up here.

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Senate Democrats Reject GOP Power-Sharing Demands

The Senate continued to hold confirmation hearings for President Joe Biden’s cabinet nominees Thursday, a process that has been held up, in part, by partisan wrangling over the power-sharing agreement in the Senate.

• Senate Democrats are currently unwilling to accept Minority Leader Mitch McConnell’s demand that the filibuster, a Senate rule that effectively allows a minority of 41 senators to block many types of legislation, be formally preserved as part of a power-sharing agreement between the two parties.
• Democrats would prefer to leave the option open to remove the filibuster if they feel in the coming weeks or months that Republicans are intransigently blocking their agenda.
• Treasury Secretary Janet Yellen said during her second day of confirmation hearings that she supported the idea of automatically tying unemployment benefits to economic indicators, a concept known as stabilizers. Under such a policy, increased federal unemployment benefits would only expire when joblessness fell below preset levels.
• Transportation Secretary nominee Pete Buttigieg said at his confirmation hearing that he supported Biden’s $2 trillion infrastructure plan. When asked if he supported raising the gas tax, he said, “all options have to be on the table.” A spokesperson later clarified that the administration did not support raising that tax.
• The House and Senate both passed a waiver that Biden’s nominee for Secretary of Defense, retired Gen. Lloyd Austin, needed because he retired from active duty less than seven years ago. That puts Austin, who would become the first Black Defense secretary if confirmed, on track for confirmation on Friday.

What’s Next: The Senate must also hash out a structure for former President Trump’s impeachment hearing. McConnell has proposed allowing Trump two weeks to prepare his defense once the House formally sends the article of impeachment to the Senate, which House Speaker Nancy Pelosi said Thursday will happen soon.

—Ben Walsh

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Bitcoin Price Plunges

The momentum that has pushed Bitcoin to near-daily new highs in recent months appears to be fading. The world’s biggest cryptocurrency by market value dropped about 12% over the past day to just over $31,000 as of Friday morning.

• The cryptocurrency hit an intraday high on Jan. 7 of $41,962.06, but is now down about 25% from that peak—a wild and largely unexplained swing.
• The drop comes even as one of the trends cited for its recent surge—traditional investors and asset managers entering the crypto space—continues. BlackRock, the world’s largest asset manager, will allow two of its funds to invest in Bitcoin futures, it said in prospectuses filed with the Securities and Exchange Commission.
• Additionally, Sequoia, a Virginia software and engineering company, is giving employees the option to be paid in Bitcoin, a choice that could create tax headaches. That’s because their Bitcoin would be subject to capital-gains taxes and income taxes.
• In her confirmation hearings, Treasury Secretary nominee Janet Yellen mentioned that Bitcoin poses a risk in terms of crime and fraud, potentially indicating a tougher regulatory posture with respect to cryptocurrency in the future.

What’s Next: It’s hard to pinpoint a good reason why exactly the price of Bitcoin is moving and that is just as true on the way down as it is on the way up. But overall, regulatory focus on illicit use cases of cryptocurrency is negative for the lightly regulated Bitcoin market.

—Ben Walsh

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American Vaccine Effort Picks Up Pace; Analysis of J&J Data Near

The sluggish U.S. vaccination effort is gaining momentum and is likely to accelerate further in the coming weeks as the Biden administration seeks to increase production of authorized vaccines and Johnson & Johnson’s Covid-19 vaccine moves toward likely FDA authorization.

• President Biden signed an executive order invoking the Defense Production Act to spur vaccine production and laid out his plan to speed manufacturing and create a more robust federal role for administering vaccines, including federally-run vaccination sites.
• Some 900,000 vaccine doses a day are currently being administered. Biden has promised to deliver 100 million vaccine shots in his first 100 days. That seemed ambitious when he first proposed it, but now looks like a relatively low bar for his administration to clear.
• Johnson & Johnson will begin analyzing data from its late-stage Covid-19 vaccine trial in the next couple of weeks, the nation’s top infectious disease expert, Dr. Anthony Fauci, said Thursday. The single-dose vaccine is considered critical because of the shortage of currently-approved vaccines and J&J’s drug does not require extra-cold storage.
• There is also encouraging data showing that Eli Lilly’s Covid-19 antibody therapy can help prevent coronavirus infections, in addition to helping treat already infected patients. The company said Thursday that a trial showed that prophylactic use of its therapy kept nursing home residents and staff from contracting symptomatic cases of Covid-19.

What’s Next: Dr. Fauci said that in the best case scenario for the U.S., a “degree of normality” would be possible by fall if 85% of Americans are vaccinated by the end of this summer.

—Ben Walsh

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COMMENTARY: How Do You Convince People to Get Vaccinated? Pay Them.

“Our results suggest that modest payments can lead to a large increase in vaccination rates, even among those who opted not to get vaccinated when they first had the chance.”

Cash can win over vaccine skeptics. That’s the result of a new study of Pennsylvania college students. Researchers conducted auctions with real cash to try to persuade students who had skipped their flu shots to sign up. It worked: “More than 90% would agree to get the shot in exchange for $100 or less.”

The researchers want to see that logic applied to Covid-19. They recommend making $400 of the Biden administration’s proposed $1,400 stimulus checks conditional on getting vaccinated. That would be better than making shots mandatory, they write in a commentary. “Economics’ most fundamental lesson is that incentives matter.”

—Matt Peterson

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Tech Stocks Beat Earnings Expectations

After the tech-heavy Nasdaq Composite hit a record on Thursday, earnings reports from three major tech players sent shares lower. Those earnings included a report from Intel that was rushed out amid the company’s concerns about a hack, the chip maker told the Financial Times.

• Intel’s CFO George Davis told the Financial Times that an infographic showing a 33% increase in Intel chip sales for the quarter was hacked off its PR newsroom site. “We put [the earnings report] out as soon as we were aware,” he said. Davis said the incident had not involved any unintentional disclosure by the company itself.
• Since those results were released before 4 p.m. Eastern time, Intel shares had a chance to react before the market closed. The company beat earnings and revenue expectations, and the stock popped in the final 15 minutes of the trading day. Shares were down 8% Friday morning. Intel’s incoming CEO Pat Gelsinger said the semiconductor giant would outsource more chip production, The Wall Street Journal reported.
• IBM beat profit expectations for its fourth quarter, but revenue came in below analysts’ consensus estimates. The company said it was seeing continued pressures from a soft global economy. Big Blue expects full-year 2021 revenue growth, but didn’t provide detailed full-year guidance for sales or earnings.
• Seagate Technology’s fiscal second-quarter results also topped consensus estimates on the top and bottom line. But after jumping 2.5% on Thursday, shares gave back gains after the close.

What’s Next: Investors are gearing up for earnings next week from big names like Microsoft, Facebook, Apple, Tesla, and McDonald’s.

—Connor Smith

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Locked-Down Europe Heads for Double-Dip Recession

A string of business surveys showed Friday that the European economy’s slump deepened in January as tightened restrictions ordered to stem the tide of new coronavirus variants are taking their toll.

• The IHS Markit flash composite purchasing manager index for the eurozone fell in January and indicated for the third consecutive month that a majority of businesses report a contraction of activity in the past month.
• A similar survey for the U.K. showed activity at an eight-month low in January, putting “the locked-down U.K. economy on course to contract sharply in the first quarter of 2021,” said Chris Williamson, the chief business economist at IHS Markit.
• The pound was down 0.6% against both the dollar and the euro in early trading Friday.
• The European Central Bank on Thursday kept its pandemic-focused asset buying program unchanged with a ceiling of 1,850 billion ($2.2 trillion) and its key rate steady at minus 0.5%, but President Christine Lagarde warned of headwinds ahead due to tighter restrictions across the region.
• EU leaders decided on Thursday to keep borders open for now but agreed on new travel curbs including the designation of “dark red” zones within Europe that would require travelers from these regions to undergo a test before departure and quarantine on arrival.

What’s Next: With vaccination campaigns hindered by bottlenecks and shortages, the hope for a quick control of the new pandemic wave are slowly replaced by fears for a possible third wave. The end of restrictions seems further away than ever, worsening the economy’s slump.

—Pierre Briançon

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Do you remember this week’s news? How well do you know your Wall Street history? Take our quiz below about this week’s news and an additional question to commemorate Barron’s turning 100 this year. Tell us how you did in an email to thebarronsdaily@barrons.com.

1. Which consumer goods company reported stronger than expected quarterly results and raised its fiscal 2021 sales and earnings guidance as cleaning and hygiene take on a higher priority?

a. Unilever
b. Procter & Gamble
c. Kimberly-Clark
d. Clorox

2. Wind and solar farms sit mostly in rural areas and need a way to reach larger cities. Which state is moving ahead with hundreds of miles of new high-voltage power lines that will transmit renewable power to its cities?

a. California
b. Colorado
c. Illinois
d. New York

3. Which energy giant announced it would pay $2.5 billion for a 20% stake in the world’s largest solar developer, Adani Green Energy, the latest move by a major oil company to increase spending on renewable energy?

a. Total
b. BP
c. Royal Dutch Shell
d. Exxon Mobil

4. The S&P 500 posted its best Election Day to Inauguration Day performance on record this week. How much was it up?

a. 10.33%
b. 12.33%
c. 14.33%
d. 16.33%

5. Who is the rapper that is launching a fund with $10 million in seed money to invest in minority-owned cannabis startups to enhance Black participation in the multibillion-dollar industry?

a. Drake
b. Jay-Z
c. Snoop Dogg
d. Chance the Rapper

100 Years of Barron’s
6. Who did longtime Barron’s columnist Alan Abelson describe as “the last of the laissez-faire presidents?”

a. George W. Bush
b. Gerald Ford
c. Richard Nixon
d. Ronald Reagan

Answers: 1(b); 2(d); 3(a); 4(c); 5(b); 6(b)

—Pauline Yuelys and Kenneth G. Pringle

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—Newsletter edited by Anita Hamilton, Stacy Ozol, Mary Romano, Matt Bemer, Ben Levisohn

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