Market shock: Black Friday turns to Red Friday as stocks slump around the world

“Forget Black Friday; today has been renamed Red Friday after the colour of share price screens as stocks slump globally on fears over a new Covid strain,” says Russ Mould, Investment Director at AJ Bell.

“The FTSE 100 fell 3.1% in early trading, dragged down by a 3.5% slump in the Brent Crude oil price which in turn weighed on shares in UK market giants Royal Dutch Shell and BP.

“The drop in the oil price the market’s way of saying it is worried about a reduction in economic activity, something which also explains the slump in metal prices.

“Markets are clearly speculating that a rapid spread of a more brutal Covid strain could once again derail the global economy. Banking stocks were also weak as they are closely tied to economic activity.

“The flipside of falling commodity prices is that a weaker oil price should provide some relief in terms of inflationary pressures. That may cause central banks to be more cautious towards raising rates in the near-term, however it does depend on whether the new Covid strain causes significant disruption or can be contained as best as possible in a rapid manner.

“Headlines calling it the ‘worst ever variant’ have caused investors to panic and dump shares in travel-related stocks for fear that we’re going to see tough travel restrictions once again.

“Wizz Air and British Airways owner International Consolidated Airlines both fell by approximately 18% in early trading, followed by a 14% drop in EasyJet and a 9% decline in Jet2.

“This is the worst possible news for airline operators as they were just starting to see a pick-up in trading, helped by people becoming more comfortable about travelling on a plane and routes like US/UK reopening.

“These companies have been under significant financial stress and will want to avoid having to go back to shareholders yet again to ask for more money to help see them through bad times, should we get new widespread travel restrictions.

“A state of panic around the new Covid variant is terrible news for retailers hoping people would go into their physical stores to snap up Black Friday deals.

“There is a good chance that the alarming news will make people stay at home to avoid crowds and any possible transmission of the disease. While that might shift some of the shopping to the online channel, it would be disastrous for pubs and restaurants hoping for a good weekend’s trading before we move into December.

“While we’re only in the early stages of trying to understand the new variant, the shocking headlines might put the fear back into a lot of people that we’re heading towards another lockdown. In doing so, they may think twice about spending money for fear of losing their job or the return of furlough putting some people on lower wages. That would have a negative impact on the economy and cast a dark cloud over the country’s growth prospects as we move closer to 2022.

“Only two FTSE 100 stocks were in positive territory within the first half hour of trading, being Ocado and Reckitt Benckiser, as investors’ minds turned to companies that have been essential during the pandemic, namely the provision of food and medicine respectively.

“ITV and WPP were down around 5% apiece, perhaps a reflection of media companies suffering when bad news hits. Advertisers might want to cut their spending if they think consumers aren’t going to spend as much near-term.

“Associated British Foods fell 5% as the prospect of another lockdown would be negative for its Primark clothing chain given it only operates out of physical stores.

“It’s a horrific end to the week for markets and the big question people will ask now is whether this is the catalyst for a full-blown market correction.”

These articles are for information purposes only and are not a personal recommendation or advice.