Dow falls over 600 points; stock losses deepen as Powell says appropriate to consider faster taper

How are stock indexes trading?

• The Dow Jones Industrial Average DJIA, -1.43% was down 617.69 points, or 1.8%, at 34,518.25.
• The S&P 500 SPX, -1.34% fell by 76.25 points, or 1.6%, to 4,579.02.
• The Nasdaq Composite COMP, -1.29% declined 274.77 points, or 1.7%, to 15,508.06.

The Dow and S&P 500 traded below their lows from Friday’s initial omicron-inspired selloff, which saw the indexes post their biggest one-day drops of the year before bouncing modestly in Monday’s session.

In One Chart: ‘Markets don’t bottom on a Friday’: Stock rout puts these S&P 500 levels in focus

What’s driving the markets?

Powell, testifying alongside Treasury Secretary Janet Yellen, told the Senate Banking Committee that it would be appropriate given the present economic backdrop to consider speeding up the tapering process, with a decision to come after reviewing the latest jobs and inflation data ahead of the central bank’s mid-December policy meeting.

Powell also backed away from the Fed’s long-running characterization of inflationary pressures as “transitory,” or short-lived. “It’s probably a good time to retire that word and explain more clearly what we mean,” he said.

“Reading between the lines, it appears that Chairman Powell has grown dramatically more concerned with the risk of sustained inflation, and is therefore looking to end the central bank’s asset purchases sooner than initially outlined,” said Matt Weller, global head of research at FOREX.com and City Index.

Powell’s comments “have already sent a tempest through major markets,” he said, in a note. “U.S. indices, fearing the accelerated end of the easy money train, are testing their lowest levels of the month.”

Investors had been eyeing Powell’s testimony to gauge his take on the omicron variant’s economic impact, which is seen potentially slowing growth and activity but also contributing to inflation through potential supply-chain troubles.

The remarks came as stocks were already under pressure following downbeat comments from vaccine maker Moderna’s MRNA, -3.32% CEO, Stéphane Bancel, about the prospects for vaccines against the new omicron variant put them back on shaky ground.

“There is no world, I think, 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’s spoken to expect a “material drop” in effectiveness of current vaccines against omicron. Moderna MRNA, -3.32% shares fell more than 6%.

Bancel cited the much higher number of mutations on the spike protein of the omicron variant and the speed at which it’s currently spreading across Africa as reasons. He predicted vaccine manufacturers would need several months to mass produce a vaccine that would be effective against omicron.

“This is once again a COVID-driven market and any negative headlines about vaccine effectiveness or the severity of omicron infections could cause more risk-off money flows as the odds of new lockdowns in parts of the world would rise as a result,” wrote Tom Essaye, founder of Sevens Report Research, in a note.

Analysts had warned on Monday that a relatively sanguine outlook about the variant among investors could leave markets prone to volatility in reaction to negative headlines.

See: Only 10% of investors see omicron as biggest threat to financial markets by year-end: flash poll

Bancel’s comments came a day after President Joe Biden said omicron was concerning, but no reason to panic, and the fight against it wouldn’t involve “shutdowns or lockdowns.” 

Echoing the Friday selloff that followed the discovery of the omicron variant, crude prices tumbled CL00, -6.33% CLF22, -6.33% more than 6% as investors sought shelter in government bonds. The yield on the 10-year Treasury note TMUBMUSD10Y, 1.446%, which moves in the opposite direction of price, was down nearly 9 basis points at 1.439%.

The Conference Board said its index of consumer confidence dropped to 109.5 from 111.6 in October, the lowest reading in nine months.

Earlier, a reading on Chicago-area manufacturing activity, the Chicago Business Barometer, also known as the Chicago PMI, was at 61.8 in November, compared with 68.4 in the prior month and median forecasts from economists polled by Dow Jones for 67.5. Readings over 50 signal expansion.

Which companies are in focus?

• Shares of Regeneron Pharmaceuticals Inc. REGN fell more than 2% after the company’s president and chief scientific offer told The Wall Street Journal that the company’s antibody treatment loses effectiveness against the omicron variant, but that the full impact won’t be known until further testing is complete in coming weeks.
• Travel-related stocks continued to feel pressure, with American Airlines Group Inc. AAL, -2.96% down 4.1%, United Airlines Holdings Inc. UAL, -2.68% off 3.9%, and Delta Air Lines Inc. DAL, -1.42% falling 2.3%. Popular airline exchange-traded fund Global Jets JETS, -2.63% fell 3.6%, while travel-booking site Expedia Group Inc. EXPE, -2.92% shed 3.7%.

What are other markets doing?

• The ICE U.S. Dollar Index DXY, -0.27%, a measure of the currency against a basket of six major rivals, was down 0.1% but moved sharply off a steeper earlier loss.
• The Stoxx Europe 600 SXXP, -0.92% fell 0.9% and London’s FTSE 100 UKX, -0.71% lost 0.7%.
• In Asia, the Shanghai Composite SHCOMP, +0.03% ended little changed, while the Hang Seng Index HSI, -1.58% and Japan’s Nikkei 225 NIK, -1.63% each fell 1.6%.