Market Recap: Wednesday, December 1

The S&P 500, Dow and Nasdaq each erased earlier gains to dip into the red. Dana Peterson - The Conference Board Chief Economist and Sam Stovall, CFRA Chief Investment Strategist joined Yahoo Finance Live to discuss today’s market action.

Video transcript

ADAM SHAPIRO: OK. We are roughly 40 seconds to the closing bell. We're going to dissect what's happened today with Dana Peterson, Conference Board's Chief Economist, Sam Stovall, CFRA Chief Investment Strategist, both joining us once again. They are fan favorites here at Yahoo Finance. But right now, we've got to look at where we're going to settle.

The Dow has accelerated to the downside in just the last few minutes. We are now going to settle probably off about 1%, 1.25%, off 430 points on the Dow. The S&P 500 is going to be down 50 points, a little bit more than 1%, and the NASDAQ is going to be off almost 2%, down 276 points. This, of course, on the news that the CDC has confirmed a case of Omicron, that's the variant of COVID-19, here in the United States.

A person who traveled from South Africa to San Francisco was infected. They had had their vaccine. They had mild symptoms. Here's the closing bell.

[BELL RINGING]

All right, we have a closing bell. We live to trade another day. We will settle down on the Dow 460-plus points, the S&P 500 off 54 points, NASDAQ is going to be down about 283 points. Sector action, only one sector positive today on the S&P 500, the utility sector, up 1/4%. Let's get to the guests.

The guests, our panelists, I like to say our contestants-- but let's talk about what we're witnessing within the last hour, hour and a half. And I'm going to start with you, Sam, because a lot of your clients, I would imagine, get nervous when we get news like we got from the CDC, even though we were all told to be prepared for this. And yet we saw a dramatic acceleration to the downside after confirmation of Omicron. Why did we see that when everyone was told to expect it?

SAM STOVALL: Well, I'm scratching my head trying to figure that out myself. I do believe, however, that we were in an overbought situation that over the last several trading days has now turned into possibly an oversold situation. So I really think that investors were just trying to get back to where we should be, because we had risen about 9.5% off of the October 4 low in only one month. So I think we had gone too far too fast, and now the question is whether we will end up seeing a rally between now and the end of the year.

ADAM SHAPIRO: Dana, this kind of volatility, this kind of news gets right to the heart of consumer confidence. And from your vantage point as an economist at the Conference Board, it doesn't seem as if we're going to get the stability that consumers want. That would have a negative impact, would it not, on those who want to invest in equities? People get nervous.

DANA PETERSON: Certainly the Omicron news is not good news for consumer confidence. Even ahead of the announcement last week over the last weekend of the Omicron becoming a new variant that's very dangerous and something that we should watch, consumer confidence was sliding a little bit even though our own measures indicate that confidence indicates, at least for the next six months, expansion, maybe it's a little bit slower. And that's actually consistent with our expectations.

This year, we're probably going to see growth of around 5.5% in the US. Next year, it's probably going to slow to 3%, 3.5%. And so that even includes in our forecasts another round another COVID wave in the first quarter of this year. It may happen a little bit sooner here in December-- but certainly not good news for the consumer confidence, and potentially seeing a soft spot in the first quarter of this year-- of next year.

ADAM SHAPIRO: Dana, I just want to follow up on that, because when you say the 5% growth in the fourth quarter of this year slowing next year, we keep being told by analysts that there's going to be a huge inventory build and restocking. In your calculations, another COVID wave, would that prevent that rebuild or just delay it?

DANA PETERSON: Potentially it might delay the rebuild. We're hoping that in the fourth quarter, we're going to see continuation of stock building. We saw a little bit of that in the third quarter, potentially more in the fourth quarter. But again, if you have another wave of COVID cases, that means there's going to be more demand for goods, and certainly businesses may not be able to deliver on those goods quickly enough.

You're still going to have the supply chain issues and the transportation issues. And even once items reach the shores, can they move to where consumers are? And so the longer and the more often that we have these outbreaks of the virus, the more likely we are going to see delay in the full improvement, in the full recovery in inventories.

ADAM SHAPIRO: Sam, you point out to your clients that it took five months to recover fully from the drop we saw-- almost 35%-- the first time we had to deal with COVID. Those who are selling today, are they making the same mistake those who sold back in 2020 made?

SAM STOVALL: I think so, because also when you look too when the Delta variant was first introduced, the market slipped about 4% before turning around and working its way higher. So pullbacks, or what I call 5% to 10% declines, are fairly common. And so if this ends up turning into a pullback, I really wouldn't be surprised.

But I believe that it would end up being more of a buying opportunity than a reason to bail, because our economic outlook is still focusing on about a 4.5% gain in 2021. And we also see-- I mean in 2022-- and we also see the year-on-year change in headline CPI being trimmed to about 2.8% by the fourth quarter of next year. So while in the very short-term they may end up being correct I think in the intermediate to longer term, they will have wished that they just sat on their hands.

ADAM SHAPIRO: You like to cite the movie "Casablanca" talking about the usual suspects when it comes to different kinds of stocks that are going to suffer. Obviously, Sam, the airlines-- I mean, I pointed out in the last hour that United, since we first learned about Omicron, United's stock has fallen almost 16%. And they have-- it's five flights a week to South Africa. And today, they opened another route to Cape Town. Would this be an opportunity to buy the usual suspects or would it be too risky?

SAM STOVALL: Well, I think it's a little early yet. The usual suspects that do well, as Jared showed before this segment, were the defensive areas-- utilities, health care, and so forth. So I think that could play out for a little while. But yes, I would be looking for opportunities to buy into a company like Delta, which is our highest rank of the airlines, to be looking at some of the leisure hospitality streaming kind of services that we think should end up doing well once the economy does reopen. So right now, our belief is that this Omicron situation-- first off, I have a hard time pronouncing it-- second, I have a hard time thinking that it's going to throw us back into a 2020 kind of an environment.

ADAM SHAPIRO: Dana, when the Conference Board released its latest gauge of consumer confidence, it dipped in November. Help us understand what American consumers are either getting right or wrong, because we heard testimony yesterday before the Senate Banking Committee, look, jobs are plentiful. People have more in their pocket when it comes to wages. I get inflation. We all hate the fact that we're paying more for everything. But we seem to be ahead of inflation, or are we not? What's the consumer telling us or what's the consumer missing?

DANA PETERSON: Sure. Well, certainly, our survey was-- our canvas was taken before the Omicron news. I'm also having trouble pronouncing it. And so the two biggest concerns were inflation, faster price increases for just about everything, and also lingering concerns about COVID. And certainly, people were still worried about Delta. And certainly, if we took that survey today, we'd see a change in the variant name.

But I think consumers are definitely getting the inflation issue correct. When we look at inflation numbers-- the CPI, the PCE deflator from month-to-month-- these measures keep rising. And certainly, the inflation is broadening out. It's broadening out to energy, food, necessities, but also things like cars, and even housing costs are rising again. And so we think it makes sense that consumers are concerned about it, and so should the Fed.

ADAM SHAPIRO: Sam, I'm going to give you the final thought. I think a lot of people right now if they're looking at their 401(k)s, just average investors, if you're 55 or older, you're more nervous than if you're 35. What's your message to those two different age groups?

SAM STOVALL: Well, my outlook is pretty much the same, because even if you retired today, actuarially, you still have 20-plus years in which to draw on that money as well as to see the portfolio continue to grow. So I would tend to say, you know, like, really don't worry about it. Your portfolio should have been positioned for your stage in life, your goals, your retirement plans, your risk tolerance, et cetera. And I would look to stock market history as virtual Valium, because the speed with which the market recovers what it lost is outstanding-- that declines of up to 20% have gotten back to break-even in an average of only four months.

ADAM SHAPIRO: I am old enough to have lived through three of those. Sam Stovall, thank you so much for joining us. Sam Stovall is CFRA Chief Investment Strategist, Dana Petersen is the Conference Board's Chief Economist. Both of you, we appreciate you joining us.