Despite opening higher on Wednesday, the stock market gave up gains from earlier in the day and quickly turned negative after the Centers for Disease Control and Prevention reported the first case of the new Covid omicron variant in the United states, sparking a sell-off.
The Dow Jones Industrial Average tumbled 1.3%, over 450 points, while the S&P 500 lost 1.2% and the Nasdaq Composite 1.8%.
Despite starting off the day strong, stocks turned negative—with the Dow giving up a more than 500-point gain—after Dr. Anthony Fauci and the CDC confirmed the first U.S. case of the new omicron variant in California.
The heavily mutated variant has now been discovered in 24 countries, with some already reinstituting lockdowns—though the Delta variant still accounts for the majority of global coronavirus cases, according to the World Health Organization.
The bad news spooked investors yet again with stock market volatility surging since late last week when the WHO first labeled omicron as a variant of “concern” and the Dow plunged 900 points in its worst day of 2021.
Travel stocks led the declines on Wednesday, with shares of airlines, hotels and cruise companies hit especially hard.
Markets are also reacting to comments from Federal Reserve chairman Jerome Powell a day ago, who said the central bank could soon tighten its accommodative monetary policy by speeding up the taper of its pandemic bond-buying program.
The Omicron variant is “wreaking havoc on markets,” says LPL Financial chief market strategist Ryan Detrick. “A week ago stocks were at all-time highs and the economy was strong… Now all we have are uncertainties and questions.” While he remains optimistic despite recent volatility, Detrick advises that investors should “buckle up their seatbelts, as the end of 2021 could be a bumpy one.”
Investors are now increasingly worried that the new variant could threaten the U.S. economic recovery. Federal Reserve chairman Jerome Powell warned as much in remarks before the Senate on Tuesday, adding that omicron also further complicates the inflation outlook. The Fed chair notably dropped the use of the word “transitory” when describing inflation, a marked shift in tone as he warned that elevated prices will now linger “well into next year.”
What To Watch For:
Although the S&P 500 is up nearly 25% so far this year, don’t expect the good times to keep rolling into 2022, Wall Street analysts warn. While most experts predict the benchmark index will rise slightly next year, a host of risks remain—namely surging inflation, ongoing supply chain issues and tighter monetary policy from the Federal Reserve. Investors will likely face below-average returns as a result, Wall Street’s biggest firms predict.