By Christine Idzelis and William Watts
U.S. stocks fell Tuesday, with all three major indexes closing sharply lower, after Federal Reserve Chairman Jerome Powell told lawmakers it would be appropriate for policy makers to consider winding down monthly asset purchases more quickly than planned.
Equities were already feeling pressure after Moderna Inc.’s chief executive officer predicted that current vaccines would be less effective against the new omicron variant of the coronavirus that causes COVID-19.
How did stock indexes trade?
The Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA +0.29% dropped 652.22 points, or 1.9%, to 34,483.72.
The S&P 500 /zigman2/quotes/210599714/realtime SPX +0.28% fell 88.27 points, or 1.9%, to 4,567.
The Nasdaq Composite /zigman2/quotes/210598365/realtime COMP +0.63% declined 245.14 points, or 1.6%, to 15,537.69.
The small-capitalization focused Russell 2000 index /zigman2/quotes/210598147/delayed RUT +2.29% slid 1.9% to 2,198.91, narrowly avoiding a close in correction territory at 2,198.47, defined as a fall of at least 10% from a recent peak.
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.
For the month of November, the Nasdaq Composite gained 0.3% while the Dow dropped 3.7% and the S&P 500 slipped 0.8%, according to FactSet data. The Russell 2000 index saw a 4.3% decline in November.
What drove the markets?
Federal Reserve Chairman Jerome 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.
Powell seemed “a little more cautious” on inflation, said James Ragan, director of wealth management research at D.A. Davidson, in a phone interview Tuesday. His remarks about tapering and inflation come at a time people are worried about the emergence of the omicron variant of the coronavirus and whether it could lead to a slowdown in economic growth, said Ragan.
“They’re trying to thread the needle here as far as the best timing on” tapering the central bank’s monthly bond purchases, Ragan said. Inflation is still “a risk to the market,” he added, explaining that tapering faster perhaps allows the Fed to raise rates sooner to keep the rise in the cost of living under control as the economy continues its rebound in the pandemic.
“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.”