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Dow falls over 500 factors as Fed’s Powell opens door to quicker taper

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Losses for U.S. stocks compounded Tuesday, with all three major indices falling sharply after Federal Reserve Chairman Jerome Powell told lawmakers it was fair for policy makers to consider making monthly stock purchases faster to be completed as planned.

Stocks were already under pressure after Moderna Inc.’s chief executive officer 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, -1.34%, fell 534 points, or 1.5%, to about 34,602 points.

  • The S&P 500 SPX fell -1.26% by 69 points, or 1.5%, to 4,586 points.

  • The Nasdaq Composite COMP lost -1.21% by 242 points or 1.5% to around 15,541.

The Dow and S&P 500 traded below their lows from 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 DA Davidson, in a telephone 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 Don’t Bottom On A Friday’: Stock flight moves these S&P 500 levels into focus

“You’re trying to thread the needle here as far as the best timing,” 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 over major 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 Stéphane Bancel, CEO of MRNA at vaccine maker Moderna, -3.34% CEO, came across the prospects for vaccines against the new Omicron variant.

“There is no world, I guess, where [the effectiveness] is the same level … we had 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, -3.34% 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 Friday sell-off that followed the discovery of the Omicron variant, crude oil prices fell CL00, -6.02% CLF22, -6.02% more than 7% on Tuesday as investor protection in government bonds were looking for. The yield on the 10-year government bond TMUBMUSD10Y, 1.444%,
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 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 was becoming less effective, but the full effects would not be known until further testing will be completed in the coming weeks.

  • Travel-related stocks continued to be under pressure, with American Airlines Group Inc.
    AAL, -2.58% and United Airlines Holdings Inc.
    UAL, while -2.30% decreased by nearly 4% each Delta Air Lines Inc.
    DAL, -1.06%, fell about 2%. Popular exchange traded fund Global US jets ETF
    JETS, -2.38%, fell 3.2% while the travel booking site Expedia Group Inc.
    EXPE, -2.69%, lost 3.7%.

What are other markets doing?
  • The ICE US Dollar Index DXY, -0.26%,
    a measure of the currency against a basket of six major rivals, lost 0.3%.

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

  • In Asia, the Shanghai Composite SHCOMP ended hardly changed with + 0.03%, while the Hang Seng Index HSI with -1.58% and the Japanese Nikkei 225 NIK with -1.63% each fell 1.6%.

—Barbara Kollmeyer contributed to this report.

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