Dow jumps nearly 650 points, erasing last week’s losses as investors shake off omicron worries

Stocks rallied to start to the week Monday, with the Dow erasing its losses from the previous week, as investors shook off fears around the emerging threat of the omicron variant of Covid-19.

The Dow Jones Industrial Average jumped, while the Nasdaq Composite lagged, though it was still in positive territory. Here’s what was influencing the markets to start the week:

Shares linked to the economic reopening gained in Monday trading, including energy, industrials and airlines.Investors sold tech stocks with relatively high valuations. Those shares dragged the market down to a losing week on Wall Street last week.The 10-year Treasury yield rebounded after falling last week amid the omicron threat.There’s a major shift underway at the Federal Reserve to bring about a faster end to its pandemic easing policies.Bitcoin declined sharply at the end of the prior week, plummeting by $10,000 in a 24-hour period from Friday to Saturday. The move suggested a decreasing risk appetite among investors.

The Dow gained 647.81 points on Monday, or 1.87%, to 35,227.89. Meanwhile, the Nasdaq Composite climbed out of negative territory 0.9% higher to 15,225.15. The S&P 500 rose 1.1% to 4,591.7. All three finished the week lower on Friday.

Stocks linked to the reopening of the economy gained, boosting sentiment on the Dow. General Electric and Boeing each gained 3%. Chevron and Caterpillar added more than 1%.

Leisure and hospitality stocks saw the biggest advances. United Airlines jumped 8% and American rose 7%. Royal Caribbean and Carnival Cruise Lines gained 8%. Shares of Wynn Resorts climbed 6% while Marriott and Hilton each rose 4%. Travel booking stock Expedia added 6%, and Booking Holdings rose 5%.

Those moves followed comments White House Chief Medical Advisor Dr. Anthony Fauci made Sunday, saying the initial data on the omicron variant is “encouraging.” The comments came the same day CDC Director Dr. Rochelle Walensky told ABC News the new variant has now been discovered in at least 15 U.S. states, and less than two weeks after the World Health Organization designated it as being “of concern.”

“Clearly, in South Africa, omicron has a transmission advantage,” Fauci said. “Although it’s too early to make any definitive statements about it, thus far it does not look like there’s a great degree of severity to it.”

The Nasdaq, though higher, lagged the other major averages Monday, weighed down by healthcare and tech stocks. Moderna, the biggest decliner in the index, fell 13%. AMD and Nvidia were off by 3% and 2%, respectively.

But as investors’ fears about omicron faded, several high-priced tech shares that began the day in the red turned green. Craig Erlam, senior market analyst at OANDA, urged investors to stay cautious until more data can provide more cause for optimism.

“Reports of the omicron symptoms being less severe are boosting risk appetite but it’s too soon to get carried away,” he said in a note. “For one, we’ve seen this repeatedly since the initial news broke a little over a week ago. Markets have been very headline-driven and this is just the latest rally on the back of some positive reports.”

Erlam also warned that the rest of this week could prove to be as volatile as the last.

“While this may be the first in a slew of positive data around the new variant, it could also be the anomaly, and what follows could explain why world leaders and various agencies have been so anxious,” he said. “Weeks like this, the economic data would always play second fiddle but as it turns out, it’s looking a little thin on that front and central banks are in the same position as the rest of us.”

On Friday, tech stocks pulled the market lower. The Nasdaq Composite slid 1.92% with shares of Tesla as the biggest drag. Cathie Wood’s flagship Ark Innovation Fund fell more than 5% Friday, and all of the fund’s holdings are now in a bear market apart from two stocks. Teladoc Health, Zoom Video, Roku, Palantir and Twilio are some of the names that registered steep losses.

But it was comments from the Fed that unnerved markets late last week, not fears about the omicron variant, according to Tom Essaye, author of the Sevens Report. Last week Chair Jerome Powell signaled the Fed’s focus is inflation, even with the new variant emerging. That led investors to investors rotate out of tech and into sectors with better exposure to higher growth.

Essaye called the market behavior a “sort of Taper Tantrum 2.0 as markets react to a more hawkish Fed and rotate into sectors with more positive exposure to rising rates.”

The central bank is likely to decide to double the pace of its taper to $30 billion a month at its meeting next week, CNBC’s Steve Liesman reported on Monday, based on comments by Fed officials. Initial discussions could also begin as soon as the December meeting about when to raise interest rates and by how much next year.

U.S. Bank Wealth Management’s Tim Hainlin said investors are also focused on what the terminal interest rate will be, and added he expects it to be lower that what investors are pricing in.

“The long-term growth rate is challenged by factors that are changing — demographics, productivity and longer-term growth in the labor force — and drive the economy in the long-term,” he told CNBC. “We still think those are muted relative to history, so the idea that the Federal Reserve would raise rates up until up to a rate that we’ve historically seen — we think that it’s not likely to get up to that level.”

Bitcoin traded around $57,000 on Friday morning, but by Saturday had plunged to around $43,000. By Monday the world’s largest cryptocurrency had clawed back some of its losses, last trading at around $48,956.04, according to Coin Metrics.

Hainlin declined to comment directly on cryptocurrency markets but said the weekend’s crash was consistent with what’s happening in the broader markets.

“Any speculative growth portions of the market are the ones that are trading off the most and that’s perhaps due to accelerated Fed tapering and Fed rate increases,” he said. “If you raise interest rates that decreases the value of those long-term cash flows for those long-term growth companies or parts of the market that are dependent on them.”

Microstrategy fell 5% Monday. Shares of Block, recently renamed from Square, and Coinbase were lower too, although they reclaimed deeper declines from earlier in the day.