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Stocks Fall After Powell's Taper Comments

Stocks prices were falling around the world before Mr. Powell’s testimony as investors struggled to understand the danger posed by the Omicron variant. The Stoxx Europe 600 closed down 0.9 percent. In Asia, the Nikkei 225 in Japan and the Hang Seng in Hong Kong each dropped more than 1.5 percent.

Investors have been closely watching updates on the new variant since last week and remain particularly attuned to the effectiveness of vaccines against it.

The chief executive of Moderna, a vaccine maker, said in an interview on Tuesday that there could be a “material drop” in the effectiveness of current vaccines to the new variant. The executive, Stéphane Bancel, told The Financial Times that it might be months before an Omicron-specific vaccine could be produced at scale, and he added that it would be risky to shift the company’s entire vaccine production while other variants are still prevalent.

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Financial markets have been unsteady since the identification of the Omicron variant in southern Africa late last week. The S&P 500 had its worst day since February on Friday, dropping 2.3 percent. On Monday, it began to recover as politicians around the world cautioned against panic, even as some put travel bans in place.

Despite the swings over the last few days, investors continue to sit on solid gains this year. The S&P 500 is up more than 22 percent in 2021 — and that’s a reason the sell-off could worsen next month, as investors try to preserve their gains for the year in the face of growing concerns about what lies ahead.

“You have uncertainty around Covid. You’ve got uncertainty around inflation, uncertainty around global central bank policy,” said Daniel Ivascyn, the group chief investment officer at PIMCO, a large fund manager based in Newport Beach, Calif. “Any one of these things may not be enough to derail the rally, but all of these issues combined with bad year-end liquidity certainly can lead to some significant downside.”

Still, investors say it’s unlikely that the Omicron variant would trigger the same kind of response from governments, business or individuals as the virus did when it first emerged. Even if Omicron is a greater threat than the Delta variant before it, investors expect its effect on the market to be less severe than the nearly 34 percent crash in share prices between February 2020 and the following month.

“The worst case is not March 2020 again,” said Jeb Breece, a principal at Spears Abacus, an independent money management firm in Manhattan. “Fear and unknowns were such a big component of that. I don’t see us doing that again.”

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Coral Murphy Marcos contributed to this report.


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