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Markets sank on Monday, extending losses from last week, as investors took into account the latest gloomy predictions regarding the sudden increase in the Omicron variant and after a major setback in President Biden’s efforts to pass a draft. comprehensive domestic policy law.
The S&P 500 fell about 1.1%, recouping some of its earlier losses. The index fell almost 2% last week.
âFor the first time since Omicron’s appearance, we have reason to fear that the variant will impact the growth trajectory of the economy,â said Lindsey Bell, chief currency and markets strategist at Ally Invest, a foreign exchange company. “A slowdown could mean inflation persists a bit longer given supply chain constraints.”
Despite its recent swings, the S&P 500 is still up 21% this year.
In the White House, the future of Mr. Biden’s $ 2.2 trillion domestic policy bill has been questioned after West Virginia Democrat Senator Joe Manchin III said he would vote against because he feared it would ignite inflation.
The impact began to weigh on the outlook for the US economy, adding to negative sentiment in the markets. Goldman Sachs said in a research note that it will reduce its projected growth for the economy next year and now expects 2% growth in the first quarter, down from 3%. Researchers at the bank said Congress may pass a version of the bill, focusing on manufacturing and supply chain issues.
The disagreement over the bill also lowered the shares of major engineering and building materials companies. SolarEdge Technologies, which provides solar-powered systems, fell 10.6%, while asphalt maker Vulcan Materials fell 2.9%.
Investors are also still reacting to the Federal Reserve’s decision last week to speed up the cut to its bond buying program, a possible prelude to higher interest rates, as the Fed tries to crack down on the inflation, wrote Saira Malik, investment director for the equity world of Nuveen, a unit of TIAA.
The stock market initially recovered after the announcement. But now investors have fully digested the Fed’s plans, raising concerns that “rapid rate hikes will slow economic growth,” she wrote in a research note.
Tech stocks, sensitive to shifts in opinion on interest rates, have fallen in recent weeks. Meta, Facebook’s parent company, fell 2.5% on Monday, while Amazon, Apple and Microsoft were also down.
Over the weekend, more European countries announced restrictions to control the spread of the coronavirus. And Germany’s central bank, the Bundesbank, has said it will lower its forecast for economic growth due to recent pandemic restrictions. European markets were down with the Stoxx Europe 600 closing down 1.4%. Asian indices closed lower.
Airlines and travel stocks fell sharply in European midday trading. But the UK’s biggest FTSE 100 decline was Informa, which hosts big in-person events. It fell 5.3%, after losing as much as 6.9% previously.
The spread of the new variant has also prompted companies to walk away altogether, exclude non-essential staff from the office, and cancel mass gatherings. CNN and JPMorgan Chase are among the companies that have implemented renewed models of working from home. The World Economic Forum said on Monday it was postponing its annual meeting in Davos, Switzerland.
Economists say the prospect of a stock market rally at the end of the year is marred by information about the Omicron variant. At the same time, trading is generally light during the holidays which makes the market more volatile.
âGiven the number of downside risks for the New Year, it’s hardly surprising that investors are taking a more cautious approach when they log off for the holidays,â wrote Craig Erlam, senior market analyst at Oanda, in a note.
Sen. Manchin’s claim that he could not support the domestic policy bill – which would offer tax credits of up to $ 12,500 for consumers buying electric vehicles – appeared to weigh on stocks from automakers on Monday. Automakers are investing heavily in the production of electric vehicles, believing that they will represent a growing share of the automotive market in the years to come.
Shares of electric carmaker Lucid fell 5.1% and fell almost a third from their peak. Rivian, which makes electric trucks and vans, has lost 7.9% and has lost almost half of its value since its peak last month. And Tesla shares are down 3.5% and have lost more than a quarter of their value since their peak last month.
Investors have increased their shares in Ford Motor and General Motors this year as these companies have decided to make electric vehicles a large part of their product lines. Ford stock was down 1.8 percent on Monday, but was still up about 120 percent for the year. GM fell 2% on Monday but has gained about 30% this year.
The bill would have extended and increased existing tax credits; Lucid and Rivian would still benefit from the credits available under the current program.
Oil prices also fell on Monday. Futures contracts for West Texas Intermediate, the US benchmark, fell almost 4% to $ 68.23 a barrel. Energy stocks were among the worst performers on the S&P 500, with Devon Energy Corporation down 2.4 and Enphase Energy 5.5%.
Pierre Eavis, Kevin granville and Eshe nelson contributed reports.