Mutants And iCars

US equities managed to pare losses Monday, rebounding from fairly steep declines catalyzed by renewed pandemic jitters.

Boris Johnson’s weekend warning about a highly virulent, “mutant” strain of COVID-19 prompted a wave of travel restrictions and raised the specter of a Christmas “food crisis” in the UK.

Those are the kinds of headlines with the potential to derail an otherwise ebullient market, and indeed European equities suffered, falling the most since October.

Losses were contained stateside. After an initial swoon, Wall Street stabilized. A safe-haven bid for Treasurys was likewise faded. Yields ended just slightly richer and early bull flattening associated with the mini-panic in Europe was unwound.

“This is in part a function of the perception that the array of vaccines has a good chance of standing up to an initial mutation [and] whether this is ultimately the case will be an operative question as 2021 unfolds and inoculations are delivered,” BMO’s Ian Lyngen and Ben Jeffery wrote Monday afternoon, of the roundtrip in rates. “The retracement of the initial risk-off tone was also attributed to reports that 50 million people in the US will have received the first dose of the vaccine by the end of January — a strong start to the year to be sure.”

As noted, one of the key questions going forward is whether this “mutation” will end up throwing the vaccines for a loop. As Bloomberg’s Cameron Crise remarked, markets and the people who trade them aren’t really in a position to make that judgment.

“Almost none of us are epidemiologists, myself included. This makes the aggregated wisdom of financial markets ill-equipped to correctly interpret technical scientific developments, at least in the very short run,” Crise wrote. “In truth, viruses mutate all the time [so] another mutation is not prima facie evidence that everything is about to go awry,” he added.

Still — and Crise mentioned this too — the problem is overburdened healthcare systems. Even if the new “variant” isn’t more deadly, a higher rate of transmission could drive up hospitalizations at a time when the US and Europe are already concerned about capacity.

In any event, banks were the big winner on Wall Street Monday, after the Fed unexpectedly gave the green light for buyback resumption. Goldman jumped nearly 6%.

Oil trimmed its worst losses, but was still down handily on the day, as the prospect of more lockdowns and travel restrictions stoked demand concerns.

Mercifully for risk assets, the dollar’s initial surge abated. The greenback rose around 0.2%, a much more benign move than that seen during the most acute moments of Monday’s fireworks. A quick move higher in the dollar in thin holiday trading could be highly destabilizing. Fingers crossed that doesn’t materialize.

Amusingly, Tesla plunged on its first day in the S&P, although calling 7% a “plunge” seems a bit hyperbolic considering how far Elon’s powerhouse has run in 2020. For reference:

Just before the closing bell, Reuters reported that Apple is building a car — or something.

“Apple is moving forward with self-driving car technology and is targeting 2024 to produce a passenger vehicle that could include its own breakthrough battery technology,” the article read, citing the ubiquitous people familiar with the matter.

Naturally, Apple declined to comment. One imagines Elon will be happy to weigh in, if he hasn’t already.