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Stock Market Today: Dow Drops 652 Points After Powell Signals Faster Taper

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·5 min read
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Federal Reserve Board Chairman Jerome Powell testifies during a Nov. 30 hearing in front of the Senate Banking, Housing and Urban Affairs Committee on Capitol Hill in Washington, D.C.
Federal Reserve Board Chairman Jerome Powell testifies during a Nov. 30 hearing in front of the Senate Banking, Housing and Urban Affairs Committee on Capitol Hill in Washington, D.C. Getty Images

The Wall Street pendulum swung back to selling early Tuesday amid the growing COVID omicron threat and a surprising cue from the Fed.

Seemingly setting up today's actions was Jake Wujastyk, chief market analyst for technical analysis software firm TrendSpider, who told Kiplinger late Monday that "This week will be all about digesting the current scientific information available and seeing if lockdowns or mandates come back into play," adding that Federal Reserve Chair Jerome Powell's multiple speaking engagements this week could also be a market mover.

He was correct on both counts.

Triggering Tuesday's premarket weakness were overnight comments by Moderna (MRNA, -4.4%) CEO Stéphane Bancel, who told Financial Times he believed there would be a "material drop" in the efficacy of current COVID vaccines against the new strain.

But stocks pulled back even further after the Fed chief told the Senate Banking Committee that in light of a strong economy and high inflationary pressures, he considered it appropriate to wrap up the central bank's tapering of asset purchases "perhaps a few months sooner" than originally planned.

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"The reality is hotter inflation coupled with a strong economic backdrop could end the Fed's bond buying program as early as the first quarter of next year," says Charlie Ripley, senior investment strategist for Allianz Investment Management. "Ultimately, the transitory view on inflation has officially come to an end as Powell's comments reinforced the notion that elevated prices are likely to persist well into next year. With potential changes in policy on the horizon, market participants should expect additional market volatility in this uncharted territory."

The Dow Jones Industrial Average (-1.9% to 34,483) was led lower by the likes of Salesforce.com (CRM, -4.0%), Travelers (TRV, -3.6%) and Coca-Cola (KO, -3.2%). The S&P 500 (-1.9% to 4,567) and Nasdaq (-1.6% to 15,537) also took a tumble.

"The travel and tourism trade is struggling the most here given the looming prospect of further travel restrictions going into early 2022," says David Keller, chief market strategist at StockCharts.com. "Hotels, cruise lines, and airlines appear especially vulnerable and are breaking key support levels as investors move their capital elsewhere."

stock chart for 113021
stock chart for 113021

YCharts

Other news in the stock market today:

  • The small-cap Russell 2000 declined 1.9% to 2,198.

  • U.S. crude futures plunged 5.4% to settle at $66.18 per barrel.

  • Gold futures retreated 0.5% to end at $1,776.50 an ounce.

  • Bitcoin was off 1.0% to $57,555.73. (Bitcoin trades 24 hours a day; prices reported here are as of 4 p.m.)

  • Apple (AAPL) was the only Dow stock to finish in the green today, adding 3.2% to close at a record $165.30. Based on its Oct. 29 close at $149.80, AAPL finished November up 10.3%, marking its best monthly performance since June, when it tacked on 9.9%. The stock is certainly well-liked by Wall Street's pros. Of the 44 analysts covering Apple tracked by S&P Global Market Intelligence, 27 say it's a Strong Buy and seven call it a Buy. This compares to eight Holds, one Sell and one Strong Sell.

  • Dollar Tree (DLTR) was a notable decliner today, sliding 5.3% after Goldman Sachs analyst Kate McShane downgraded the retail stock to Neutral (Hold) from Buy. The shares jumped more than 9% last week on stronger-than-expected earnings and news of broad price hikes at its stores, and the analyst believes "expected improvements are now priced in the stock."

Omicron Puts Investors on Red Alert

The omicron variant's largest danger to the market right now is the uncertainty about its danger.

"Investors fear a worst-case scenario variant that could send many parts of the world back to the dark days of 2020. With many major economies now experiencing cold weather, and lockdowns in some European countries, this would only add to problems and exert downward pressure on stocks, especially more cyclically sensitive equities," says Invesco Chief Global Market Strategist Kristina Hooper, who notes that it will likely be weeks before there's any concrete knowledge to work with.

"Sectors that may be better protected include technology, healthcare and utilities," she adds, while the most vulnerable areas include travel and leisure, general retail and basic materials.

That latter sector is the latest focus of Kiplinger's 2022 investing outlook.

As of just a few days ago, materials stocks had plenty going for them – namely, a continuing global economic recovery and a gusher of fresh infrastructure spending from the U.S. government. The omicron variant potentially threatens the former.

That makes materials tricky to deal with in the short term, but opportunistic investors might want to take advantage of price dips to buy high-quality sector picks like these 12 best material stocks for 2022.

Kyle Woodley was long CRM as of this writing.

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