Markets sink on omicron, setback with bill

Markets sank Monday, extending last week’s losses, as investors took in the latest grim forecasts about the sudden surge in the omicron variant and after a big setback in President Joe Biden’s efforts to pass a comprehensive domestic policy bill.

The S&P 500 fell about 1.1 percent, recovering some of its earlier losses. The index fell nearly 2 percent last week.

“For the first time since omicron appeared, we have reason to be nervous about the variant hava an impact on the growth trajectory of the economy,” said Lindsey Bell, the chief money and markets strategist at Ally Invest, a foreign exchange company. “A slowdown could mean inflation sticks around a bit longer given supply chain constraints.”

Despite its recent wobbles, the S&P 500 is still up 21 percent this year.

In the White House, the future of Biden’s $2.2 trillion domestic policy bill was put in doubt after Sen. Joe Manchin, D-W.Va., said he would vote against it because he feared it would inflame inflation.

The impact began to weigh on prospects for the U.S. economy, adding to negative sentiment in markets. Goldman Sachs said in a research note that it would scale back its projected growth for the economy next year and now expected 2 percent growth in the first quarter, down from 3 percent. Researchers at the bank said Congress could pass some version of the bill, with a focus on manufacturing and supply chain issues.

Investors are also still reacting to the Federal Reserve’s decision last week to speed up the tapering of its bond-buying program, a possible prelude to higher interest rates, as the Fed tries to quell inflaing tion, wrote Saira Malik, the chief investment officer at Nuveen, a unit of TIAA.

The stock market initially rallied after the announcement. But now, investors have fully digested the Fed’s plans, raising concerns that “a rapid increase in rates might cause economic growth to slow,” she wrote in a research note.

Shares of technology stocks, which are sensitive to changing views on interest rates, have fallen in recent weeks. Meta, Facebook’s parent company, fell 2.5 percent Monday, while Amazon, Apple and Microsoft were also lower.

Economists say the prospect for year-end rise in the stock market is marred because of news on the omicron variant. At the same time, trading is generally light during the holidays, making the market more volatile.

“Given the amount of downside risks going into the new year, it’s hardly surprising to see investors adopting a more cautious approach as they log off for the holidays,” Craig Erlam, a senior market analyst at OANDA, wrote in a note.

Oil prices also fell Monday. Futures of West Texas Intermediate, the U.S. benchmark, dropped nearly 4 percent to $68.23 a barrel.