Stocks Fall on Omicron Variant Concerns and Questions About the Fed’s Plans

Jerome Powell Speaks to Senators

The Omicron variant and rising inflation could prompt the Federal Reserve to wind down its bond-buying program faster than expected. That sent stocks plunging yesterday. During testimony before a Senate committee, Fed Chairman Jerome Powell said the potential move is in response to the economy’s recovery and rising inflation.

The Fed could raise interest rates in the first part of 2022, earlier than anticipated. The central bank plans to discuss the pace of its tapering at a mid-December meeting. While Powell expects inflationary pressures to ease next year, he acknowledged that rising prices have been more persistent and widespread than expected.

Concerns About Vaccines and the Variant

Questions about the Federal Reserve’s upcoming moves were not the only thing weighing on the stock market. Drugmakers are warning that their vaccines and treatments may not be as effective against the Omicron variant as they are against other strains of the virus. Moderna (MRNA) said its existing vaccine would likely experience a “material drop” in effectiveness against the new variant, and that it could take months for a new vaccine to be available to the public.

Meanwhile, Regeneron Pharmaceuticals (REGN) said that based on early tests, its COVID-19 antibody treatment is less effective in fighting the Omicron variant. Eli Lilly’s (LLY) antibody drug treatment is also less effective against the new strain, according to independent testing.

Lingering Uncertainty

Investors are laser-focused on Omicron and the impact it will have on the economy. Stocks climbed earlier in the week when it appeared the symptoms from Omicron were mild, but news that current vaccines and treatments may not be effective against the variant spooked investors, sending stocks plunging. Travel stocks including Expedia (EXPE) and American Airlines (AAL) took a big hit. Oil prices also declined.

The Omicron variant is adding uncertainty to a market already reeling from rising inflation and other concerns. As investors continue to react to news about the variant, markets could continue to be volatile in the coming weeks.

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