Variant Worries and Powell Remarks Pressure Equities….

U.S. equities were solidly lower to finish out a volatile November after Fed Chair Powell hinted at the possibility of speeding up the central bank’s tapering campaign. Markets were also focused on the new Omicron variant, what affect it may have on global economic activity, and how governments will respond. On the economic front, Consumer Confidence decreased slightly more than forecasts, the Chicago PMI took a fairly large dip, and a read on home prices increased less than expected. Equity news was again light, but Moderna’s CEO made some comments on the likely lower effectiveness of existing vaccines on the new variant. Treasuries finished mixed in the wake of Powell’s comments, and the U.S. dollar traded to the downside, while crude oil prices dropped, and gold was lower. European equities finished with widespread losses, seeing noticeable late-day pressure following Powell’s testimony, while markets in Asia were also lower.

The Dow Jones Industrial Average tumbled 652 points (1.9%) to 34,484, the S&P 500 Index fell 88 points (1.9%) to 4,567, and the Nasdaq Composite lost 245 points (1.6%) to 15,538. In very heavy volume, 6.4 billion shares of NYSE-listed stocks were traded, and 6.5 billion shares changed hands on the Nasdaq. WTI crude oil declined $3.77 to $66.18 per barrel. Elsewhere, the gold spot price lost $11.00 to $1,774.20 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.5% lower at 95.91.

The Conference Board’s Consumer Confidence Index  decreased to 109.5 in November from October’s downwardly-revised 111.6 level, and versus the Bloomberg estimate calling for a decline to 110.9. The index fell after rebounding last month, as both the Present Situation Index portion of the survey and the Expectations Index of business conditions for the next six months moved lower. On employment, the labor differential—consumers’ appraisal of jobs being “plentiful” minus being “hard to get”—rose to 46.9 from the 43.8 level posted in October.

The Conference Board noted that, “Consumer confidence moderated in November, following a gain in October. Expectations about short-term growth prospects ticked up, but job and income prospects ticked down. Concerns about rising prices – and, to a lesser degree, the Delta variant – were the primary drivers of the slight decline in confidence. Meanwhile, the proportion of consumers planning to purchase homes, automobiles, and major appliances over the next six months decreased.”

The 20-city composite S&P CoreLogic Case-Shiller Home Price Index showed a 19.05% year-over-year (y/y) gain in home prices in September, slightly below estimates. Compared to the prior month, home prices were up 0.96% on a seasonally adjusted basis, compared to forecasts of a 1.20% gain.

The Chicago PMI surprisingly fell more than expected but remained at a level depicting expansion (a reading above 50). The index fell to 61.8 in November from October’s 68.4 reading, versus estimates calling for a decrease to 67.0. The drop came as growth in new orders and employment slowed, while production expansion accelerated, supplier delivery times increased, and prices paid continued to rise but at a slower rate.

In testimony to the Senate COVID panel, Fed Chairman Jerome Powell warned that a recent rise in COVID-19 cases and the emergence of the Omicron variant could pose downside risks to employment and economic activity. He also said that the central bank could step up the timetable of its plan to taper its bond-buying activities, saying, “At this point, the economy is very strong and inflationary pressures are higher, and it is therefore appropriate in my view to consider wrapping up the taper of our asset purchases … perhaps a few months sooner,” adding that he expects that it will be discussed at its upcoming December meeting.

Treasuries finished mixed following Powell’s comments, as the yield on the 2-year note was up 2 basis points (bps) at 0.53%, while the yield on the 10-year note decreased 9 bps to 1.44%, and the 30-year bond rate was 8 bps lower at 1.79%.

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