The S&P 500 retreated Monday, led by a selloff in cyclical stocks including energy as fresh worries about the economic impact of the Omicron Covid-19 variant soured investor sentiment on Wall Street.
The S&P 500 fell 0.6%, the Dow Jones Industrial Average slumped 0.61% , or 219 points, the Nasdaq slipped 0.9%.
Energy fell nearly 3% weighed down by falling oil prices amid fresh worries about the threat to energy demand from the growing emergence of the omicron variant, which has led to tougher restrictions in countries including the U.K.
Chevron (NYSE:CVX), Kinder Morgan (NYSE:KMI) and Exxon Mobil (NYSE:XOM) were the biggest declines in the energy sector.
The jitters over the energy demand outlook come even as the OPEC raised its world oil demand forecast for the first quarter of 2022, forecasting a mild and temporary impact from Omicron.
Consumer discretionary stocks were also hit by Omicron-fueled fears with cruise line companies including Carnival (NYSE:CCL) and Norwegian Cruise Line (NYSE:NCLH) leading to the downside.
In tech, Apple (NASDAQ:AAPL) gave up gains after failing just shy of recording a $3 trillion valuation.
Semiconductor stocks exacerbated the decline in tech, paced by a decline in Amkor Technology (NASDAQ:AMKR), NVIDIA (NASDAQ:NVDA) and Applied Materials (NASDAQ:AMAT).
The risk-off sentiment triggered a flight to safety, supported a move higher in U.S. government bond prices, which trade inversely to yields. The 10-year yield fell below 1.4%.
Against the backdrop of falling yields, banking stocks including Regions Financial (NYSE:RF) , Wells Fargo (NYSE:WFC) and People’s United Financial (NASDAQ:PBCT) fell sharply.
Lower interest rates dent the return on interest that banks earn from their loan products, or net interest margin – the difference between the interest income generated by banks and the amount of interest paid out to depositors.
Utilities and consumer staples - defensive corners of the market - bucked the trend lower, while health care was also supported by a rise in the shares of vaccine makers.
Pfizer (NYSE:PFE), Moderna (NASDAQ:MRNA), and Novavax (NASDAQ:NVAX) rising more than 1% following further reports confirming that additional booster Covid shots were effective against the Omicron variant.
The sell off on Wall Street comes just a day ahead of the Federal Reserve's two-day meeting, which is expected to culminate on Wednesday in an announcement of a faster pace of bond tapering.
"At its final meeting of the year, we expect the FOMC to deliver a material hawkish pivot that matches recent rhetoric from various FOMC participants, including Chair Powell," Morgan Stanley said in a note.
"We think the key policy decision at this meeting will be to accelerate the taper to a pace of $30bn/month, beginning in January, and setting the taper on course to conclude in mid-March," it added.