Stock

Market Snapshot: Dow falls over 500 pips as Fed Powell opens the door to a sooner taper

Losses for US stocks spiked Tuesday, with all three major indexes falling sharply after Federal Reserve Chairman Jerome Powell told lawmakers it was fair for policy makers to consider making monthly stock purchases faster than planned to be carried out.

Stocks were already under pressure after Moderna Inc. CEO predicted that current vaccines would be less effective against the new Omicron variant of the coronavirus that causes COVID-19.

How are stock indices traded?

The Dow Jones Industrial Average
DJIA,
-1.35%
dropped 534 points, or 1.5%, to about 34,602 points.

The S&P 500
SPX,
-1.27%
decreased by 69 points or 1.5% to 4,586 points.

The Nasdaq Association
COMP,
-1.20%
decreased by 242 points or 1.5% to around 15,541.

The Dow and S&P 500 traded below their lows of the first omicrones-inspired sell-off on Friday, when the indices posted their largest one-day declines of the year before rising modestly in Monday's session.

What is driving the markets?

Federal Reserve Chairman Jerome Powell, who testified with Treasury Secretary Janet Yellen, told the Senate Banking Committee that given the current economic climate, it would be appropriate to consider accelerating the tapering process, with a decision following Review of the latest job and inflation data to be taken is the central bank's monetary policy meeting in mid-December.

Powell also pulled away from the Fed's longstanding characterization of inflationary pressures as "temporary" or short-lived. "It is probably a good time to drop that word and explain what we mean more clearly," he said.

Powell appeared to be "a little more cautious" about inflation, said James Ragan, director of wealth management research at D.A. Davidson, in a phone interview on Tuesday. His remarks on tapering and inflation come at a time when people are concerned about the emergence of the omicron variant of the coronavirus and whether it could lead to a slowdown in economic growth, Ragan said.

In a diagram: “Markets do not bottom out on a Friday”: The stock flight brings these S&P 500 levels into focus

"You're trying to thread the needle as far as possible here," Ragan said. Inflation is still "a risk to the market," he added, explaining that a faster cut may allow the Fed to hike rates sooner to keep the cost of living under control while the economy rebounds the pandemic continues.

"Reading between the lines, it seems that Chairman Powell has become dramatically more concerned about the risk of sustained inflation and is trying to end the central bank's asset purchases earlier than originally described," said Matt Weller, global head of Research at FOREX .com and City Index.

Powell's comments "have already sent a storm through the big markets," he said in a note. "US. Indices, fearful of the accelerated end of the easy money train, are testing their lows for the month.

Read: S&P 500 could end “fairly flat” in 2022 amid previously “unthinkable” negative real interest rates, says the BofA strategist

Investors eyed Powell's testimony to gauge his assessment of the economic impact of the omicron, worried that the variant could potentially slow activity and contribute to inflation through potential supply chain problems.

Shares were already under pressure on Tuesday after vaccine maker Moderna made dire comments
MRNA,
-3.91%
CEO Stéphane Bancel on the prospects for vaccines against the new Omicron variant.

"I don't think there is a world where [effectiveness] is on the same level … as we did with Delta," Bancel told the Financial Times in an interview published early Tuesday. He said the scientists he spoke to expect a "material decline" in the effectiveness of the current vaccines against Omicron. Moderna
MRNA,
-3.91%
Stocks fell more than 6%.

The reasons given by Bancel are the much higher number of mutations in the spike protein of the Omicron variant and the speed with which it is currently spreading in Africa. He predicted that it would take vaccine manufacturers several months to mass-produce a vaccine that would be effective against Omikron.

"This is a COVID-driven market again, and any negative headlines about the effectiveness of vaccines or the severity of Omicron infections could lead to more risk-free cash flows as it would increase the likelihood of new lockdowns in parts of the world," wrote Tom Essaye , Founder of Sevens Report Research, in a note.

Analysts warned on Monday that a relatively optimistic outlook on the variant among investors could make the markets vulnerable to volatility in response to negative headlines.

See: Only 10% of investors see omicron as the greatest threat to the financial markets at the end of the year: Flash survey

Bancel's comments came a day after President Joe Biden said Omicron was worrying but not a cause for panic, and that the fight against it would not involve "shutdowns or bans."

Following the sale on Friday that followed the discovery of the Omicron variant, crude oil prices collapsed
CL00,
-5.95%

CLF22,
-5.95%
more than 7% on Tuesday as investors sought protection in government bonds. The yield on the 10-year government bond
TMUBMUSD10Y,
1,440%,
which is moving in the opposite direction of the price fell by 8 basis points to around 1.44% on Tuesday afternoon.

The Conference Board announced that the consumer confidence index fell to 109.5 from 111.6 in October, its lowest level in nine months.

Previously, a measure of manufacturing activity in the Chicago area, the Chicago Business Barometer, also known as the Chicago PMI, came in at 61.8 in November, compared with 68.4 in the previous month and the median projections of economists surveyed by Dow Jones were at 67.5. Measured values ​​over 50 signal expansion.

Which companies are in focus?

Shares in Regeneron Pharmaceuticals Inc. REGN fell about 1.4% after the company's president and major scientific offering told the Wall Street Journal that the company's antibody treatment against the Omicron variant would become less effective, but the full effects would not be felt until more testing was completed in the will be known in the coming weeks.

Travel-related stocks continued to be under pressure, with American Airlines Group Inc.
EEL,
-2.37%
and United Airlines Holdings Inc.
UAL,
-2.16%
each decreased by almost 4% while Delta Air Lines Inc.
DAL,
-0.88%
down about 2%. Popular exchange traded fund Global US jets ETF
NOZZLES,
-2.31%
fell 3.2% while the travel booking side Expedia Group Inc.
EXPERIENCED,
-2.69%
3.7% lost.

What are other markets doing?

The ICE US dollar index
DXY,
-0.27%,
a measure of the currency against a basket of six major rivals, lost 0.3%.

The Stoxx Europe 600
SXXP,
-0.92%
fell 0.9% and the London FTSE 100
UKX,
-0.71%
0.7% lost.

In Asia is the Shanghai Composite
SHCOMP,
+ 0.03%
ended little changed during the Hang Seng Index
HSI,
-1.58%
and Japan's Nikkei 225
NIK,
-1.63%
each decreased by 1.6%.

—Barbara Kollmeyer contributed to this report.

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