The S&P 500 recovered some losses Tuesday, but remained pressured after Federal Reserve Chairman Jerome Powell signaled a more aggressive tapering of bond purchases at a time when concerns about the new Omicron variant remained front and center.
The S&P 500 fell 1.56%, but was down more than 2% at the lows of the day. The Dow Jones Industrial Average fell 1.6%, or 560 points, the Nasdaq fell 1.54%.
"The economy is very strong and inflationary pressures are high, and it is therefore appropriate in my view to consider wrapping up the taper of our asset purchases, which we actually announced at the November meeting, perhaps a few months sooner,” Powell said in testimony before the Senate Banking Committee.
In a sign that elevated inflation could persistent for longer than expected, Powell conceded that it was “good time to retire that word [transitory].”
Some, however, welcomed the change in tone on inflation from the Fed chief, and were in favor of faster taper in the wake of a surge in inflation and a strong consumer.
“I think it's healthy to see Powell recognize that inflation is real, it's not just coming and going, but part of the fabric of the global economy right now,” Eric Diton, president & managing director of The Wealth Alliance told Investing.com in an interview.
“The Fed should taper [faster], I scratched my head as to why they're buying the current volume of bonds every month when we're seeing inflation, strong earnings and very strong consumer demand," he added.
The update from Powell rattled risk sentiment as it arrived amid uncertainty about the impact of the Omicron variant of coronavirus on the economy.
Moderna (NASDAQ:MRNA) chief executive Stéphane Bancel “warned of a material drop,” in vaccine in efficacy against the Omicron variant.
Communication services were the biggest decliners, with Discovery (NASDAQ:DISCA), Dish and Twitter (NYSE:TWTR) leading to the downside.
Twitter Inc (NYSE:TWTR) fell more than 4% as slew of analysts on Wall Street reacted negatively to news that the Jack Dorsey had stepped down as CEO of the social media company.
“We believe investors were expecting or hoping for an external candidate to take over … [with] experience that would help it reach its user growth and revenue targets, with a focus on improving ad tech,” Wedbush said in a note as it cut its price target on Twitter to $52 from $69.
Energy continued to follow oil prices as fresh concerns about the impact of the new Covid variant on travel demand is likely to force OPEC and its allies to delay plans to increase production at their meeting on Thursday.
OPEC+ confirming its plan to increase production is “virtually unimaginable in view of the latest market developments,” Commerzbank said in a note
“In our opinion, any such decision would exert further pressure on oil prices in the current market environment, which is hardly likely to be in the interests of the OPEC+ members.”
Tech outperformed relative to other sectors, down just 0.7%, underpinned by a 2% rise in Apple (NASDAQ:AAPL).
“We were overdue for a correction, but I'm a buyer into it as a pullback might open up opportunities for tax loss harvesting as well as opportunities for better entry points in equities,” Diton added.