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Heller: Travel Stocks, Small Caps Are Market Fear Factors

Buckle up for what might be a wild ride as we near the end of 2021, says Jonathan Heller in Real Money.

With the omicron variant making the media rounds, the stock market suffered a selloff on Nov. 26, with stocks down across the board.

Is it a sign of things to come this holiday season? It's looking more likely. The Dow Jones Industrial Average index  (DJIA)  bounced back on Monday, up 236 points (0.7%) for the day’s trading session, only to be slammed again Tuesday. This time, in addition to omicron, newly renominated Fed Chairman Jay Powell added to the fun by retiring his characterization of inflation as "transitory."

If the volatility continues, theStreet’s Jonathan Heller points to small-cap stocks and travel stocks as likely targets.

“Last Friday's market action was about what I'd expect in the more typical panic-driven mini-selloff; smaller names suffered the brunt of the damage,” Heller said in Real Money. “While large-caps, as measured by the S&P 500, were down nearly 2.3%, their smaller cousins were hit harder as the Russell 2000 and Russell Microcap Indexes fell 3.41% and 3.46%, respectively.”

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The Russell 2000 Value Index suffered even greater damage last Friday, dropping 3.92%.

“You typically expect the smaller, more speculative names to get hit harder in a selloff, but in the Twilight Zone that is 2021, that has not always been the case,” Heller noted. “During the down days of 2021, I've seen several occasions where smaller names have held up pretty well relative to the big guys. The sell-offs that are most frightening and most real (at least in my view) are what we saw on Friday as investors ditch smaller names first.”

“We don't know if this is the beginning of a market drawdown or just typical Black Friday market action put on steroids by fear of the latest covid variant, but buckle up for what could be a wild end to 2021,” he added.

Travel stocks were among last Friday's biggest sufferers, in particular cruise stocks.

“Royal Caribbean Cruises  (RCL) - Get Royal Caribbean Group Report (down 13.2%), Norwegian Cruise Line Holdings  (NCLH) - Get Norwegian Cruise Line Holdings Ltd. Report (down 11.4%) and Carnival Corp.  (CCL) - Get Carnival Corporation Report (down 11%) suffered similar fates,” Heller said. “

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