Stocks sink as omicron, rate worries rattle Wall Street

NEW YORK — 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 long-term 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 S&P 500 dropped 88.27 points to 4,567. The benchmark index sank 2.3% Friday for its worst loss for February, only to rise 1.3% Monday as investors reconsidered whether the reaction was overdone, before giving way to Tuesday’s loss. The index closed out November with a 0.8% loss. That follows a 6.9% gain in October and a 4.8% drop in September. The index is now up 21.6% for the year.

Crude oil prices slid with concerns that a global economy weakened by omicron would burn less fuel. Benchmark U.S. crude dropped 5.4% and touched its lowest level in three months. Brent crude, the international standard, fell 3.9%.

If omicron does ultimately do heavy damage to the global economy, it could put the Federal Reserve in a difficult spot. Usually, the central bank will lower interest rates, which encourages borrowers to spend more and investors to pay higher prices for stocks.