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Dow falls more than 500 points, Nasdaq ends lower as U.S. stocks book losses in volatile Fed week

MarketWatch logo MarketWatch 12/17/2021 Christine Idzelis
© Michael M. Santiago/Getty Images

U.S. stock indexes closed lower Friday, booking losses for the week, as investors assessed the economic impact of the spread of the coronavirus omicron variant and the most recent moves by central banks around the world.

Video: Powell Says Fed to Double Taper Pace in Inflation Pivot (Bloomberg)

Some of the volatility on Friday could be attributed to quadruple witching, or the simultaneous expiration of single-stock options, single-stock futures, and stock-index options and stock-futures, and end of quarter fund rebalancing, analysts said.

How did stock indexes trade?
  • The Dow Jones Industrial Average dropped 532.20 points, or 1.5%, to close at 35,365.44, after earlier touching an intraday low at about 35,284.
  • The S&P 500 fell 48.03 points, or 1%, to end at 4,620.64, after rebounding from an intraday low of about 4,600.
  • The Nasdaq Composite Index slipped 10.75 points, or 0.1%, to finish at 15,169.68, after struggling to cling to gains in late afternoon trading, and earlier touching a Friday low at about 14,960.
  • For the week, the Dow lost 1.7%, the S&P 500 dropped 1.9% and the Nasdaq Composite tumbled 3%.

On Thursday, the Dow had eased 30 points, or 0.1%, to 35,898, the S&P 500 lost 0.9%, or 41 points, to 4,669 and the Nasdaq Composite slumped 2.5%, or 385 points, to 15,180.

What drove markets?

U.S. equity benchmarks booked losses this week, with omicron fears and so-called quad witching day in stocks perhaps contributing to Wall Street’s whipsawing session Friday, as investors digested the Federal Reserve’s hawkish pivot this week.

The “almost manic” moves in the market this week probably are linked to shifting monetary policy, as the Fed becomes less accommodative while positioning itself for potential interest rate hikes next year to combat high inflation, according to Tim Courtney, chief investment officer of Exencial Wealth Advisors. 

“A lot of the underlying assumptions are now starting to change,” said Courtney, who is based in Oklahoma City, by phone. “We’re now well out of the range of what you would consider normal inflation,” he said, with the cost of living in the pandemic clearly surging beyond “what we’ve experienced over the last decade.”

Meanwhile, President Joe Biden warned Thursday during remarks at a White House briefing that hospitals could be overwhelmed as the omicron variant spreads rapidly across the U.S., declaring the potential for a “winter of severe illness and death.” The progress of the illness has raised some doubts about the economy and the reaction of central banks to the persistent pandemic.

“The big picture is that central banks generally sounded more concerned about the rise in inflation, despite the ongoing spread of the Omicron variant,” wrote analysts at Capital Economics, in a research report dated Friday.

New York Fed President John Williams, during a CNBC interview on Friday, however, said he is confident the central bank can get a handle on surging inflation without causing a recession, as some market participants fear.

Williams said the economy is now in a unique set of circumstances driven by the COVID-19 pandemic and “looking back at historical episodes” isn’t the best guide for how the economy will evolve.

Fears of an economic slowdown were emanating out of the bond market early Friday, with the 10-year Treasury note yield falling below a closely watched level of 1.40%, before trading back to that reference point in the afternoon. A decline in long-dated Treasury yields often implies that investors are worried about the economic outlook.

The slide in yields came even after the Fed on Wednesday announced plans to speed up the reduction in its monthly bond purchases so that the program ends in March instead of June. The central bank also projected three quarter-point interest rate increases next year as Fed Chairman Jerome Powell said there was a risk of high inflation persisting.

Read: Interest rate hike needed ‘shortly’ after March end to asset purchases, Fed’s Waller says

“US stocks went on a rollercoaster ride as investors continue to digest incremental omicron updates, geopolitical tensions increase as the US considers sanctions on Russia and China, and on added volatility from triple witching,” said Edward Moya, senior market analyst for the Americas at OANDA, in an emailed note Friday.

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Which companies were in focus?
  • Shares of General Motors Co. dropped 5.5% after the abrupt departure of longtime company executive Dan Ammann. Ammann, up until Thursday, was running GM’s self-driving car division, Cruise Automation.
  • United States Steel Corp. X warned of a “temporary slowdown” in orders during the fourth quarter. The company’s stock fell 1.6%.
  • Rivian Automotive RIVN shares slumped 10.3% after its first quarterly report as a public company.
How did other assets fare?
  • The yield on the 10-year Treasury note fell about two basis points to 1.401% Friday, for a weekly drop of 8.6 basis points based on 3 p.m. Eastern levels, according to Dow Jones Market Data. Treasury yields and prices move in opposite directions.
  • The ICE U.S. Dollar Index DXY, a measure of the currency against a half-dozen other monetary units, was up 0.6% Friday for a weekly gain of 0.5%.
  • In oil futures, West Texas Intermediate crude CL00 for January CLF23 delivery fell 2.1% Friday to settle at $70.86 a barrel, pulling the U.S. benchmark down 1.1% for the week, according to Dow Jones Market Data.
  • Gold futures GC00 for February delivery GCG22 rose 0.4% to settle at $1,804.90 an ounce, increasing weekly gains for the most-active contract prices to 1.1%.
  • The Stoxx Europe 600 Index SXXP closed 0.6% lower Friday to post a weekly decline of about 0.3%, while London’s FTSE 100 Index UKX rose 0.1% Friday but still lost 0.3% for the week.
  • In Asia, the Shanghai Composite Index SHCOMP lost 1.2% Friday for a weekly decline of 0.9%. The Hang Seng Index HSI fell 1.2% in Hong Kong Friday, increasing losses for the week to about 3.3%. China’s CSI 300 000300 skidded 1.6% lower Friday for a weekly loss of 2%. Japan’s Nikkei 225 Index NIK declined 1.8% Friday but still gained 0.4% for the week.

—Steve Goldstein contributed to this report.


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