stocks
major indices are down more than 1.5% on the dual threat of the Omicron variant and a more aggressive Fed. The S&P 500 (-1.6%), Nasdaq Composite (-1.6%), and Dow Jones Industrial Average (-1.6%) are each down 1.6% while the Russell 2000 underperforms with a 2.3% decline.
De-risking efforts are broad-based: all 11 S&P 500 sectors are down between 1.0% (real estate) and 2.6% (communication services), the 10-yr yield is down nine basis points to 1.44%, and oil prices are down 6.0% to $65.80/bbl. The CBEO Volatility Index (27.21, +4.25, +18.5%) has spiked above 27.00, signaling increased hedging interest against further downside.
The first catalyst was Moderna's (MRNA 348.89, -19.62, -5.3%) CEO saying he expects that current vaccines will be materially less effective against the Omicron variant. The second, and main catalyst now, was a comment from Fed Chair Powell before the Senate Banking Committee that it's time to retire the word "transitory" when talking about inflation.
That translates to the Fed potentially speeding up its taper plan so it can get to raising rates to keep inflation check, even as the Omicron variant poses economic risks. Fed Chair Powell supported this thinking with a statement that the central bank will talk about a faster taper plan at the next policy meeting.
The 2-yr yield is currently up three basis points to 1.54% after trading at 1.43% prior to the comments. According to the CME FedWatch Tool, the probability for a rate hike in May has increased to 46.0% from 34.3% yesterday, and the probability for a rate hike in June has increased to 68.9% from 58.5% yesterday.
Other negative factors stem from the economic front, which could be further impacted by the Omicron variant. The Conference Board's Consumer Confidence Index dropped to 109.5 in November (Briefing.com consensus 111.0) from 111.6 in October, and Chicago PMI dropped to 61.8 in November (Briefing.com consensus 67.0) from 68.4 in October.
Notably, Apple (AAPL 164.02, +3.78, +2.4%) is doing its best to mitigate the losses in the large-cap indices with a 2% gain.
Reviewing today's economic data:
The Conference Board's Consumer Confidence Index dropped to 109.5 in November (Briefing.com consensus 111.0) from a downwardly revised 111.6 (from 113.8) in October. That is the lowest reading since February 2021.
The key takeaway from the report is that concerns about rising prices and the Delta variant were the drivers of the decline in confidence. With the omicron variant now on the scene and not part of the equation for the November report, one has reason to think that consumer confidence will continue to skew to the cautious side of things.
The Chicago PMI dropped to 61.8 in November (Briefing.com consensus 67.0) from 68.4 in October.
The FHFA Housing Price Index increased 0.9% m/m in September following an unrevised 1.0% increase in August. The S&P Case-Shiller Home Price Index increased 19.1% yr/yr in September (Briefing.com consensus 19.3%) following a revised 19.6% (from 19.7%) increase in August.
