In testimony before the Senate Banking Committee, Powell said he no longer viewed high inflation as “transient” and that the Fed would reconsider the timing of its reduction in its bond purchase program at its next. meeting in two weeks.
The S&P 500 – an indicator of the health of retirement and education savings accounts – fell 88.27 points, or 1.9%, to end at 4,567 points, while the Nasdaq Composite Index technology-intensive fell 245.14 points, or 1.55%, to 15,537.69. The Dow Jones Industrial Average fell 652.11 points, or 1.86%, to 34,483.72.
“Powell’s comments threw a monkey into the key to market thinking in terms of potential taper timing. As a result, you see a reduction in risk across the board, ”said Michael James, managing director of equity operations at Wedbush Securities in Los Angeles.
“You also have to take into account the Omicron variant issues. You may wonder if this is more of a global risk or a real risk, but regardless, it has a significant impact on oil and everything related to economic growth. “
Powell’s comments also sparked speculation among some investors about a potential acceleration in interest rate hikes.
“The main contributor to the decline in stock prices today is Powell’s comment, regarding the next Fed meeting, on stepping up the reduction in their bond buying program, which obviously leads to the prospect that the rate hikes will occur earlier next year, ”said Mark. Luschini, chief investment strategist at Janney Montgomery Scott in Philadelphia.
“This somewhat hawkish change in tone caught the market off guard,” Luschini said.
Meanwhile, the market has also waited for information on the dangerousness of the Omicron variant, the degree to which current coronavirus vaccinations could offer protection, and the additional restrictions governments may have to impose that could hurt the economy. , Luschini said.
Tuesday’s declines were widespread, with all 11 major S&P sectors down. Communication services were the main decline in the late afternoon. As oil prices fell, energy was also under pressure throughout the session.
Monday’s rally saw stocks regain some of the ground they lost on Friday when the market first sold off on news of the virus variant.
While the United States Food and Drug Administration has said it hopes to have information on the effectiveness of current COVID-19 vaccines against Omicron, vaccine makers appeared to be divided.
The CEO of BioNTech said the BioNTech and Pfizer COVID-19 vaccine would likely offer strong protection against serious illnesses of the variant, while the CEO of Moderna Inc told the Financial Times that the injections are unlikely. of COVID-19 are as effective against the new variant as they have been. been before.
Moderna’s shares fell while those of Regeneron Pharmaceuticals Inc were also under pressure after saying its treatment with COVID-19 antibodies and other similar drugs may be less effective against Omicron.
Travel and leisure stocks slumped, with the S&P 1500 Airlines and S&P 1500 Hotels, Restaurants and Leisure indexes both falling amid concerns over more border restrictions.
Uncertainty over the virus has raised new alarms as supply chain bottlenecks weigh on economic recovery and central banks around the world consider a return to pre-pandemic monetary policy to cope to soaring inflation.