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Dec. 20, 2021, 5:02 p.m. EST

Dow tumbles over 400 points, S&P 500 posts worst 3-day decline since September as omicron ignites stock selling

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By Vivien Lou Chen and Mark DeCambre

The Dow Jones Industrial Average fell to its lowest closing level in more than two weeks, while the S&P 500 posted its biggest three-day percent drop since Sept. 30, as the fast-spreading omicron variant of COVID-19 raised fresh questions about the global outlook.

How did stock indexes trade?

  • The S&P 500 /zigman2/quotes/210599714/realtime SPX +2.47% finished 52.62 points, or 1.1%, lower at 4,568.02. It was the largest one-day point and percentage decline since Dec. 1, based on Dow Jones Market Data.

  • The Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA +1.76% closed down by 433.28 points, or 1.2%, at 34,932.16, weighed by losses in UnitedHealth Group Inc . /zigman2/quotes/210453738/composite UNH +0.97% , Travelers Cos. Inc. /zigman2/quotes/206313935/composite TRV +1.69% , Goldman Sachs Group Inc . GS , and Caterpillar Inc . CAT . It was the lowest closing value since Dec. 3. The index also had its biggest three-day point and percentage decline since Nov. 30.

  • The Nasdaq Composite Index /zigman2/quotes/210598365/realtime COMP +3.33% finished lower by 188.74 points, or 1.2%, at 14,980.94. It was the lowest closing value since Oct. 15, and off by 6.7% from its Nov. 19 record close.

  • The S&P 500 posted its biggest 3-day percent slide since Sept. 30, while the Nasdaq Composite posted its worst such drop since May 12.

On Friday, the Dow dropped more than 500 points, or 1.5%, with the S&P 500 and Nasdaq Composite following it lower. For the week , the Dow lost 1.7%, the S&P 500 dropped 1.9% and the Nasdaq tumbled 3%.

What drove the market?

Markets slumped at the start to an abbreviated week of trading for most financial markets in observance of Christmas. Sharp declines were seen in most S&P 500 sectors, led by financials /zigman2/quotes/210599854/delayed XX:SP500.40 +1.79% , materials /zigman2/quotes/210599855/delayed XX:SP500.15 +2.29% , and industrials /zigman2/quotes/210600030/delayed XX:SP500.20 +2.05% as crude prices plunged .

Worries about omicron sapped some of the joy out of the market for bullish investors, with lockdowns in parts of Europe weighing on sentiment.

News that President Joe Biden’s signature $2 trillion spending plan appeared doomed also was greeted with selling. Sen. Joe Manchin, D-W.Va., said on Sunday that he cannot support it —potentially handing Biden and Democrats a major political loss.

Prompted by the political wrangling, a team led by Jan Hatzius, chief U.S. economist for Goldman Sachs, downgraded its U.S. growth forecast for 2022 , citing difficulties in getting the spending bill passed. Declines in all three major stock-market indexes followed losses last week, which came as Federal Reserve officials sped up their reduction of monthly bond purchases and penciled in three interest-rate hikes next year.“If worries about the spread of Omicron abated, stock markets would probably recover some of the ground they’ve lost recently,” said Thomas Mathews, markets economist for Capital Economics. “But given the prospect of less supportive monetary and fiscal policy, and how far equities have already come, we wouldn’t expect this to mark the beginning of another sustained rally, either,” Mathews wrote in a note. “Instead, we expect fairly underwhelming returns from equities over the next couple of years.”

Need to know: These are the big levels to watch for the S&P 500 and Nasdaq. Expect ‘wild trade,’ if they break, warns this strategist.

Early Monday, Moderna /zigman2/quotes/205619834/composite MRNA +8.73% said its COVID-19 booster, when combined with two vaccines, offers 37-fold protection against the omicron variant.

But new COVID-19 cases are growing sharply in many parts of the world, fueled by the rapid spread of that variant. Dr. Anthony Fauci said Sunday that he expects record cases of COVID-19 this winter , and urged people to get vaccinated and get boosters. The Netherlands began another lockdown that will last until mid-January and the U.K. hasn’t ruled out tighter pre-Christmas restrictions.

Meanwhile, the World Economic Forum announced that its annual meeting in Davos, Switzerland, which was due to be held in January, will be delayed to summer 2022 , due to the spread of COVID-19. It’s the second straight year that the conference has been postponed. While omicron will leave investors nervous in the short run, that should ultimately fade, according to Eric Schiffer, chief executive of The Patriarch Organization, a private-equity firm. “The biggest driver of the market will be the Fed rate hikes as early as March. Consumer defensives and healthcare will benefit in the short run, while future tech with no earnings will get beaten down harder,” Schiffer wrote in an e-mail to MarketWatch.

Read: Why inflation and the U.S. policy response will be key for markets in 2022

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US : U.S.: Nasdaq
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