Stock ETFs Struggle Amid Worries Over New U.K. Covid Strain | ETF Trends

Stocks and index ETFs are attempting to recover Monday after tumbling lower in the futures market Sunday night amid worries over a contagious new coronavirus strain in the U.K, even as stimulus negotiations could be nearing completion.

After plummeting nearly 1000 points in overnight trading Sunday, the Dow Jones Industrial Average fell 168 points Monday, as the S&P 500 lost 1.3% and the Nasdaq Composite gave up 1.2%. The much-anticipated entrance of Tesla into the S&P 500 saw the automaker’s stock plummet as much as 6% as it entered the S&P, which also contributed to the index’s fall.

Major stock ETFs also sank and then recovered some on Monday as well, inspired by the possibility of more stimulus, but dragged down by coronavirus worries. The SPDR Dow Jones Industrial Average ETF (DIA), SPDR S&P 500 ETF Trust (SPY), and Invesco QQQ Trust (QQQ) are all lower as of 1PM EST.
Now with a stimulus package agreed upon, investors may also be seeking to lock in profits after an unexpected banner year. With only two trading weeks left in 2020, the S&P 500 is up 13.6% for the year, while the 30-stock Dow has risen 5.2%. The Nasdaq Composite has rallied 40.7% this year as investors favored high-growth technology companies.

A New Covid Strain Hits the U.K.

Although scientists say there is no evidence that the new Covid strain is more virulent, Prime Minister Boris Johnson claimed it could be up to 70% more contagious than others, and the health secretary explained it was “getting out of control.”

As a result of the new strain, at least 40 countries including the entire European Union and Canada have halted incoming travel from the U.K.

Travel-related stocks struggled amid news of the new coronavirus strain, resulting in the fall of stocks like Norwegian and Royal Caribbean cruise lines’, whose shares each fell more than 3%. American Airlines, which dropped 5.2%, and the U.S. Global Jets ETF (JETS) lost 2.5%.

“There was actually a lot of encouraging news this morning, although it’s being overshadowed (for now) by the gloomy headlines out of the U.K.,” wrote Vital Knowledge’s Adam Crisafulli in a note to clients. “The market has been in a tug-of-war between the very grim near-term COVID backdrop and the increasingly hopeful medium/long-term outlook (driven by vaccines) – the latter set of forces are more powerful in aggregate, but on occasion the market decides to focus on the former, and stocks suffer as a result.”

The index futures and ETF losses arrived as lawmakers are closing in on an agreement over a $900 billion relief package, which would offer direct payments and jobless aid to Americans who are still hurting due to the pandemic, and could head to families as soon as next week.

Lawmakers are set to vote on the relief and funding bill on Monday, making that a potentially more important driver for stocks and ETFs.

While there is definitely concern over the fresh outbreak of the virus in the U.K., Eli Lilly said Monday that its coronavirus antibody therapy “should maintain full activity against the new strain” identified in the U.K.

“Covid mutations are a reality, and there is at least some disappointment around what’s actually in the stimulus deal, which means we may see this translate into volatility as we narrow in on the end of 2020,” said Chris Larkin, managing director of trading and investing product at E-Trade.

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