The new delta variant has wreaked havoc on the stock market this week. Yet on Tuesday, the same sell-off wasn’t in play. That might not mean we’re out of the woods just yet. As demonstrated by the latest news out of Washington. House Speaker Nancy Pelosi’s staff member and a White House official both tested positive for COVID-19. They were both at the same reception earlier this month.
The important thing to note is that both were vaccinated. Clearly, this shows that even those who are inoculated can still catch the virus. In situations where they are asymptomatic, the risk is run that the virus is transmitted unknowingly.
In an interview, a White House official explained that “The White House is prepared for breakthrough cases with regular testing. This is another reminder of the efficacy of the COVID-19 vaccines against severe illness or hospitalization.”
What’s more, the same staffer helped bring Democratic Texas lawmakers around the Capitol. Believe it or not, 6 of those lawmakers also tested positive for COVID-19.
What Does This Mean For Penny Stocks & The Overall Stock Market Today?
This is a developing story, but so far, the news hasn’t seemed to stall the stock market rally today. Furthermore, smaller companies & penny stocks have also echoed a similar trend. If you take a look at the Russell 2000 Small-Cap ETF (NYSE:IWM), it has bounced by more than 2.5%. Monday, the ETF traded at some of its lowest levels since March. This echoed across countless small-cap stocks.
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Top holdings of the Russell ETF include AMC Entertainment (NYSE:AMC), Crocs Inc. (NASDAQ:CROX), and Tenet Healthcare Corp. (NYSE:THC). It also has plenty of other penny stocks, including Comstock Resources (NYSE:CRK) and W & T Offshore (NYSE:WTI), which were both green on the day.
This move in smaller companies has been a frequent trend during the economic recovery. Coming out of the pandemic with vaccine distribution in tow has placed a focus on companies that could benefit from reopening. Furthermore, during periods of market melt-downs like we saw this week, evidence has also shown small-cap stocks and penny stocks tend to outperform.
Small Caps & Penny Stocks To Outperform This Year?
Jodie Gunzberg, managing director, chief institutional investment strategist at Morgan Stanley Wealth Management, explained that small-caps have outperformed during months following troughs of large-cap stocks. She explained in a statement to US News, “In the six, 12, and 24 months following large-cap troughs, large caps gained 31.5%, 29.4%, and 48.2% on average. However, the gains were larger with small caps that generated 46.9%, 53.4%, and 86.2%.”
Since small-caps and cyclical stocks tend to be more sensitive to the economy, any ramp-up in spending could help spark further momentum.
Thanks to a rebound in equities today, fears that were apparent on Monday seem to have subsided. Now that we know the severity of the Delta variant and evidence showing even those who’ve been vaccinated can catch the virus, will this leave a lasting impact? As this story develops, we will continue to update.