S&P 500 slips back under 4700 amid cautious start to week

US equities markets have come under pressure on the first trading day of the week after the S&P 500 managed a record high close last Friday at 4712. The index has dropped more than 25 points to current levels in the 4680s, a decline of over 0.5%. Still, the S&P 500 continues to trade within the ranges carved out during the latter part of last week, so Monday’s selling pressure is hardly catastrophic. But it is indicative of markets beginning the week with a sense of caution as worries about the Omicron variant persist and ahead of a deluge of key central bank meetings (most important of which is the Fed) and G10 economic data releases.

The Nasdaq 100 is the worst performing of the major indices, down about 0.9% on the session, though the index looks set to find support above the 16.1K level for a fifth consecutive session. The Dow, meanwhile, is down about 0.7%, while the VIX is up about 1.50 and back above the 20.00 mark, indicative of traders deeming it too soon to completely unwind post-Omicron volatility expectations. Speaking of the new variant, news from the UK seems to have triggered some concern after the UK PM warned of a “tidal wave” of infections, which now apparently already account for around a fifth of the infections in the whole country.

“Creeping headlines about the Omicron variant are weighing on traders' minds”, said analysts at Equiti Capital. Meanwhile, according to analysts at Charles Schwab, “the big unknown is still the Omicron variant and we don't know just yet how that may affect markets and the economy, but as long as that uncertainty exists the volatility is probably going to remain higher”.

Covid-19 fears weighed heavily on the Transportation (-1.2%) and Airline (-3.9%) sectors, with traders citing the possibility that parts of the US follow in the footsteps of Europe in the coming weeks and reimpose restrictions. The uncertain start to the week also weighed on US yields, particularly at the long-end (given that the short-end remains underpinned by expectations for a hawkish Fed midweek), but this has not come to Big Tech’s aide. The S&P 500 Communication Services and Information Technology GICS sectors were down about 0.5% and 0.9% respectively. The more defensive sectors held up better. The Consumer Staples sector was up more than 1.0%, while the S&P 500 Healthcare sector was up 0.9%.