Stocks pare earlier gains with Omicron, inflation in focus

Stocks pared earlier gains and traded slightly higher Wednesday afternoon, as more hawkish remarks from Federal Reserve Chair Jerome Powell compounded with concerns around the Omicron variant and its impacts on the economy.

The S&P 500 and Dow rose, while the Nasdaq dipped into negative territory before recovering.

The Centers for Disease Prevention and Control said Wednesday it identified the first confirmed case of the Omicron variant in the U.S.

Stocks cut gains after CNN first reported the news around 1:45 p.m. ET, citing an unnamed person familiar with the matter. The U.S. joined more than two dozen other countries in reporting at least one case of the Omicron variant, which was first identified last week by scientists in South Africa.

The latest development renewed concerns about the potential impact of the new variant for the domestic economy. A day earlier Moderna (MRNA) CEO Stephane Bancel told the Financial Times that the company’s current COVID-19 vaccine would likely see a “material drop” in effectiveness against Omicron, but that more data was still needed on the variant.

This commentary, as well as ongoing uncertainty over the transmissibility and severity of disease caused by the new variant, also contributed to the broader market slide seen on Tuesday.

“The market doesn’t like an information vacuum, and now we have two,” Thomas Hayes, Great Hill Capital Chairman, told Yahoo Finance Live. “Not only did we have the CEO of Moderna expressing concern that his vaccines may not have full coverage for Omicron, but then you had Powell throw this … wrench into the mix at the hearing saying that maybe we’ll speed up taper by a few months. That’s no small potatoes for sure, because the market had anticipated over six or seven months that we would get another $660 billion of liquidity.”

Namely, Powell told the Senate Banking Committee that it would be appropriate for the central bank to consider completing its asset-purchase tapering process “a few months sooner” than previously telegraphed. Market participants had been anticipating that the Fed might strike a more supportive stance for longer especially given concerns over the latest coronavirus variant. But instead, Powell suggested his priority was on curbing persistently elevated levels of inflation, and the Fed chair added it was “probably a good time to retire” his description of inflation as “transitory.”

“Chairman Powell’s commentary course-corrected the view on inflation and the potential need for quicker policy adjustment,” Charlie Ripley, senior investment strategist for Allianz Investment Management, wrote in an email. “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.”

“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,” he added. “With potential changes in policy on the horizon, market participants should expect additional market volatility in this uncharted territory.”

—

12:55 p.m. ET: Bank stocks jump amid rise in Treasury yields

Bank stocks jumped Wednesday afternoon as Treasury yields climbed, with traders pricing in expectations for an interest rate hike by the Federal Reserve next year after its asset-purchase tapering process ends.

The two-year yield, which is sensitive to expectations for monetary policy changes, jumped by about 5.5 basis points Wednesday afternoon to hover around 0.58%. The yield on the benchmark 10-year Treasury note rose by 1 basis point to 1.45%.

The jump in Treasury yields helped lift shares of major banks including JPMorgan Chase and Goldman Sachs, both of which are also Dow components. The KBW Regional Banking Index, an exchange-traded funding tracking bank stocks, rose by more than 3.4% for its best climb in a month.

—

10:05 a.m. ET: ISM Manufacturing index ticks up to 61.1 in November, coming in-line with estimates

Manufacturing sector activity picked up in November compared to October, though inflationary concerns and other price pressures continued to weigh on goods-producing industries.

The Institute for Supply Management’s (ISM) November manufacturing index came in at 61.1 for the month, up from 60.8 in October. Readings above the neutral level of 50.0 indicate expansion in a sector.

Beneath the headline index, a subindex tracking prices paid eased to 82.4 from 85.7 in October, but still came in elevated compared to pre-pandemic levels amid lingering inflation. A subindex tracking employment improved to 53.3, rising from October’s 52.0.

“The U.S. manufacturing sector remains in a demand-driven, supply chain-constrained environment, with some indications of slight labor and supplier delivery improvement,” Timothy Fiore, Chair of the Institute for Supply Management Manufacturing survey, said in a press statement. “All segments of the manufacturing economy are impacted by record-long raw materials and capital equipment lead times, continued shortages of critical lowest-tier materials, high commodity prices and difficulties in transporting products.”

“Pandemic-related global issues — worker absenteeism, short-term shutdowns due to parts shortages, difficulties in filling open positions and overseas supply chain problems — continue to limit manufacturing growth potential,” Fiore added.

—

9:32 a.m. ET: Stocks rise, S&P 500 and Nasdaq gain more than 1%

Here’s where markets were trading just after the opening bell:

S&P 500 (^GSPC): +48.17 (+1.05%) to 4,615.17
Dow (^DJI): +254.43 (+0.74%) to 34,738.15
Nasdaq (^IXIC): +177.88 (+1.13%) to 15,712.72
Crude (CL=F): +$2.30 (+3.48%) to $68.48 a barrel
Gold (GC=F): +$13.00 (+0.73%) to $1,789.50 per ounce
10-year Treasury (^TNX): +3.7 bps to yield 1.478%

—

8:22 a.m. ET: Private payrolls rose more than expected last month: ADP

Private sector employment expanded more than anticipated in November, suggesting further improvement in the labor market’s recovery.

U.S. private payrolls grew by 534,000 in November compared to October, ADP said in its closely watched monthly report. Consensus economists were looking for private payrolls to rise by 525,000, according to Bloomberg data. Private payrolls had grown by 570,000 in October, according to ADP’s revised monthly figure.

More data on the state of the labor market will be due on Friday, when the Labor Department releases its “official” government jobs report. Consensus economists are looking to see non-farm payrolls rose by 548,000 in November, accelerating modestly from October’s better-than-expected 531,000 rise. ADP’s report has not typically served as a perfect indicator of what to expect from the government job report due to differences in survey methodology.

—