NEW YORK (REUTERS) – Wall Street’s major averages fell more than 1 per cent on Wednesday (Dec 1) after a morning rally faded as investor angst about the latest coronavirus variant soared with the first case confirmation in the United States while the market also digested the US Federal Reserve’s comments on inflation.
After having advanced as much as 1.9 per cent by late morning, the S&P 500 gave up all its gains in the afternoon along with the Dow and Nasdaq, which fell the most on the day. All three indexes breached key technical levels during the session.
Late in the day, the US Centres for Disease Control said the country had detected its first case of the Omicron variant, which had infected a person who came from South Africa.
Earlier on Wednesday, Fed chair Jerome Powell said policymakers needed to be ready to respond to the possibility inflation may not recede in the second half of next year as expected.
Wall Street had already tumbled on Tuesday after Mr Powell had surprised the market by signalling that the central bank would consider accelerating the withdrawal of its bond buying programme at its meeting this month amid a surge in inflation.
Independent Advisor Alliance chief investment officer Chris Zaccarelli said: “The market’s grappling with the twin concerns of the Omicron variant, which may or may not be able to evade the vaccine, and a more hawkish Powell than expected.”
Wall Street had tumbled sharply on Friday when investors first heard of the Omicron variant, with health officials saying they were unsure how transmissible or dangerous the variant is and how much protection existing vaccines provide.
On Monday, the market rebounded sharply as investors looked for bargains after the sell-off, only to fall again on Tuesday following Mr Powell’s comments.
“We tried to buy the dip again (on Wednesday) but news that Omicron is here already has taken some of the wind out of the sails of the bulls,” said Mr Zaccarelli.
The Dow Jones Industrial Average fell 461.68 points, or 1.34 per cent, to 34,022.04, the S&P 500 lost 53.96 points, or 1.18 per cent, to 4,513.04 and the Nasdaq Composite dropped 283.64 points, or 1.83 per cent, to 15,254.05.
The Dow closed below its 200-day moving average for first time since July 13 last year, while the S&P finished below its 50-day moving average for first time since Oct 13 and Nasdaq ended a session under its 50-day moving average for first time since Oct 14.
While all of the 11 major S&P sectors were gaining into the early afternoon, all but one sector ended the day in the red.
The communications services sector was the biggest loser, with a 1.99 per cent drop, and consumer discretionary was not far behind, with a 1.86 per cent dip.
The sole advancing sector was utilities, a more defensive sector that tends to draw interest when investors are fleeing from riskier bets. The next best performers on the day were also defensive sectors, with healthcare ending down 0.2 per cent and consumer staples falling 0.4 per cent.
The CBOE market volatility index, often referred to as Wall Street’s fear gauge, closed up 14.5 points at 31.12 after earlier rising to 32.61, its highest level since February.
The economically sensitive Russell 2000 index of small cap companies did an almost complete about-face, closing down 2.3 per cent after rising as much as 2.5 per cent at its late morning peak.
The World Health Organisation said it expected to have more information on the transmissibility of the Omicron variant within days, and that the agency believes existing Covid-19 vaccines will work against it.
New York Life Investments economist and portfolio strategist Lauren Goodwin said it was not surprising to see volatility as investors digest uncertainties, including the lack of information on Omicron and the latest signals from the Fed.
However, Ms Goodwin also pointed at Wednesday’s positive economic data, which was “reminding investors that the economic and corporate backdrop for this market is really strong”.
US manufacturing activity picked up last month amid strong demand for goods.
Salesforce.com forecast current-quarter profit below estimates as it faces stiff competition from rivals including Microsoft, sending its shares down 11.7 per cent.
Declining issues outnumbered advancing ones on the NYSE by a 2.26-to-1 ratio; on Nasdaq, a 2.96-to-1 ratio favoured decliners.
The S&P 500 posted 13 new 52-week highs and 42 new lows; the Nasdaq Composite recorded 37 new highs and 541 new lows.
Trading volume was elevated, with 14.2 billion shares changing hands on US exchanges, compared with the 11.3 billion average for the last 20 sessions.