Stocks rally for a second day, Nasdaq jumps 3% as investors reassess omicron risk

Stocks jumped for a second day, continuing their rebound from a recent rough patch, as investors grew less fearful of the potential economic impact from the new omicron coronavirus variant.

The Dow Jones Industrial Average rose 513 points, or 1.4%. The S&P 500 added 2% and the tech-heavy Nasdaq Composite gained 3%.

“The market certainly — and this morning is another indication — is kind of looking past the [omicron] variant as something that’s going to be slowing down economic activity, but we’re still not completely out of the pandemic,” David Solomon, Goldman Sachs chairman and CEO, told CNBC’s “Squawk Box” Tuesday morning.

Investors were betting that the new Covid-19 strain may cause milder illness than feared. White House Chief Medical Advisor Dr. Anthony Fauci said Sunday that the initial data on the variant is “encouraging,” though he cautioned that more information was needed to fully understand it.

British drugmaker GlaxoSmithKline said new data shows its monoclonal antibodies treatment is effective against all strains of the omicron variant. Its shares rose 1%.

Tech stocks were in relief rally mode as investors shook off Covid fears and bought the recent dip, pulling the Nasdaq higher. Crowdstrike and Okta gained 5% while Adobe added 4%. Mega-cap tech stocks got a lift too, with Microsoft, Google, Meta Platforms and Amazon all up about 2%.

Additionally, Apple shares rose 2% as well after a call from Morgan Stanley, in which maintained its outperform rating on the stock but heightened its price target on it to $200, citing the company’s commitment to developing augmented and virtual reality technology.

Chipmakers were big winners too, with Intel leaping 3%, following news that Intel is planning to take its self-driving car unit, Mobileye, public in mid-2022. Nvidia rose 4% and AMD gained more than 3%.

“Time will tell whether investors are getting ahead of themselves but a couple of days without a negative omicron headline has the dip buyers flooding back in,” said Craig Erlam, senior market analyst at OANDA.

On Friday investors rotated out of tech stocks on those Covid-related fears, and into names linked to the recovering economy, which many market strategists and analysts have called an overreaction.

“Given the concern among global leaders and various organizations over the last couple of weeks, I struggle to see all of the updates being as positive which makes more two-way price action a strong possibility,” Erlam added. “A Santa rally may be underway but it will be a bumpy ride.”

Elsewhere, Tesla shares gained more than 3% despite news that the company had to replace cameras in three of its models. UBS said the electric carmaker will be the dominant force in the industry and raised its price target.

Energy stocks moved higher too as oil prices rise and the outlook for global oil demand recovers. Devon and Diamondback Energy jumped 6% while Occidental Petroleum added 5%.

And travel-related stocks, which led the market rally Monday, continued their climb. Wynn Resorts jumped more than 3%, Norwegian Cruise Line Holdings jumped about 4%. The Invesco Dynamic Leisure and Entertainment ETF gained 1.9%.

The moves follow a comeback on Wall Street in the previous session that saw the blue-chip Dow gain nearly 650 points. The S&P 500 jumped 1.1% with all 11 sectors registering gains. The Nasdaq Composite reversed higher to end the day up 0.9%.

“Easing Omicron fears are making way for investors to position for a more hawkish Fed,” said Fiona Cincotta, senior financial market analyst at City Index. “The markets are dialing back on the potential economic damage that Omicron could cause as initial reports suggest that the new COVID variant is less severe.”

Meanwhile, the market is also weighing the likelihood that the Federal Reserve would begin to remove its massive pandemic easing policies and hike rates sooner than expected.

Comments by Fed officials suggest the central bank is likely to decide to double the pace of its taper to $30 billion a month at its December meeting next week. Initial discussions could also begin as soon as the December meeting about when to raise interest rates and by how much next year.

“After the markets roller coaster ride last week traders are likely at a bit of a crossroads,” said Chris Larkin, managing director of trading at E-Trade Financial. “On one hand Omicron may be less of a threat, but on the other the Fed could potentially accelerate tightening, so we could see some shifts in the market.”

Market focus will shift to the new inflation data later this week. The consumer price index, which is expected to be even hotter than the prior month, could become the catalyst for the Fed to deliver faster tightening of its policies.

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