Stocks sink as variant, rate worries rattle Wall Street
Already unnerved by the newest coronavirus variant, Wall Street’s losses deepened on Tuesday after the head of the Federal Reserve said it will consider shutting off its support for financial markets sooner than expected.
The S&P 500 fell 1.9%, erasing its gains from a day earlier. The sell-off accelerated after Fed Chair Jerome Powell told Congress the central bank may halt the billions of dollars of bond purchases it’s making every month “perhaps a few months sooner.” It had been on pace to wrap up the purchases, meant to goose the economy by lowering rates for mortgages and other longterm loans, in June.
An end to the purchases would open the door for the Fed to raise short-term interest rates from their record low of nearly zero. That in turn would dilute a major propellant that’s sent stocks to record heights and swatted away concerns about an overly pricey market. As investors moved up their expectations for the Fed’s first rate hike following Powell’s remarks, yields on short-term Treasurys rose.
Losses for stocks mounted quickly, with the drop for the Dow Jones Industrial Average more than tripling in half an hour as it sank 711 points. The blue chip index ended down 652.22 points, or 1.9%, at 34,483.72.
The Nasdaq composite held up slightly better than the rest of the market, shedding 245.14 points, or 1.6%, to 15,537.69. Higher interest rates tend to hurt stock prices broadly, but they hit hardest on those seen as the most expensive or banking on big profit growth the furthest in the future. Such companies play a bigger role in the Nasdaq than other indexes. Microsoft fell 1.8% and chipmaker Nvidia slid 2.1%.
The whammy on interest rates came after stocks were already weak in the morning due to concerns about how badly the fast-spreading omicron variant of the coronavirus may hit the global economy.
The CEO of Moderna predicted in an interview with the Financial Times that existing COVID-19 vaccines may be less effective with omicron than earlier variants. Regeneron also said Tuesday that its monoclonal antibody treatment may have reduced effectiveness on omicron. Shares in Moderna fell 4.4%, while Regeneron dropped 2.7%.
Much is left to be determined about the variant, including how much it may slow already gummed-up supply chains or scare people away from stores. That uncertainty has sent Wall Street through jagged up-and-down jolts as investors struggle to handicap how much economic damage omicron will ultimately do.
“There will be heightened volatility around any piece of information,” said Kristina Hooper, chief global market strategist at Invesco. She said markets will likely remain cautious “before we know more.”