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S&P 500 Off Lows but Bleeding Continues as Powell Signals Faster Taper -Breaking

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© Reuters.

By Yasin Ebrahim

Investing.com – The S&P 500 recovered some losses Tuesday, but remained pressured after Federal Reserve Chairman Jerome Powell signaled a more aggressive tapering of bond purchases at a time when concerns about the new Omicron variant remained front and center.

While the index fell by 1.56%, it was still down over 2% at its lowest point of the day. Nasdaq dropped 1.54%, or 1.6% (560 points).

“The economy is very strong and inflationary pressures are high, and it is therefore appropriate in my view to consider wrapping up the taper of our asset purchases, which we actually announced at the November meeting, perhaps a few months sooner,”  Powell said in testimony before the Senate Banking Committee.

In a sign that elevated inflation could persistent for longer than expected, Powell conceded that it was “good time to retire that word [transitory].”

However, some welcomed the Fed Chief’s change of tone regarding inflation. They were more in favor of faster taper following a spike in inflation and strong consumers.  

“I think it’s healthy to see Powell recognize that inflation is real, it’s not just coming and going, but part of the fabric of the global economy right now,” Eric Diton, president & managing director of The Wealth Alliance told Investing.com in an interview.

“The Fed should taper [faster]”I was puzzled as to why they were buying so many bonds when there is strong inflation, high earnings, and strong consumer demand,” he said.

Powell’s update rattled risk-belief sentiment amid uncertainty over the economic impact of Omicron coronavirus.

Moderna (NASDAQ:) chief executive Stéphane Bancel “warned of a material drop,” in vaccine in efficacy against the Omicron variant.

Communications services suffered the most, with Dish (NASDAQ) and Discovery (NASDAQ), leading the way.

Twitter Inc (NYSE:) dropped more than 4 percent as Wall Street analysts reacted badly to the news that Jack Dorsey was no longer the CEO of the social media firm.  

“We believe investors were expecting or hoping for an external candidate to take over … [with] experience that would help it reach its user growth and revenue targets, with a focus on improving ad tech,” Wedbush said in a note as it cut its price target on Twitter to $52 from $69.

As new concerns over the effect of Covid on travel demand are raised, energy prices continued to rise as oil prices rose. This will likely force OPEC to postpone plans to raise production at its meeting on Thursday.  

OPEC+ confirming its plan to increase production is “virtually unimaginable in view of the latest market developments,” Commerzbank said in a note

“In our opinion, any such decision would exert further pressure on oil prices in the current market environment, which is hardly likely to be in the interests of the OPEC+ members.”

Technology outperformed other sectors by only 0.7%. This was due to a 2.2% increase in Apple’s stock (NASDAQ:).

“We were overdue for a correction, but I’m a buyer into it as a pullback might open up opportunities for tax loss harvesting as well as opportunities for better entry points in equities,” Diton added.

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