Dow claws back from Tuesday rout as Powell says he doesn’t think Fed tapering will disrupt financial markets

U.S. stock benchmarks were climbing midday Wednesday, following the previous session’s selloff, as Fed Chairman Jerome Powell in a second day of congressional testimony said that he didn’t think a slowdown and eventual end to asset purchases would disrupt financial markets.

The comments come a day after the market swooned on a combination of hawkish comments from Powell and worries surrounding the omicron variant of coronavirus.

How are stock-index futures trading?
  • The S&P 500 index

    rose 76 points, or 1.7%, to 4,643.

  • The Dow Jones Industrial Average

    traded 432 points, or 1.3%, higher to 34,918.

  • The Nasdaq Composite Index

    advanced 217 points, or 1.4%, to reach 15,755.

On Tuesday, the Dow industrials dropped 652.22 points, or 1.9%, to 34,483.72. The S&P 500 fell 88.27 points, or 1.9%, to 4,567, while the Nasdaq Composite declined 245.14 points, or 1.6%, to 15,537.69. The Russell 2000 index 

slid 1.9% to 2,198.91, just shy of a close of 2,198.47 that would have put it in correction territory, defined as a fall of at least 10% from a recent peak.

What’s driving the markets?

Markets took on a decidedly more optimistic tone Wednesday, as a rebound for the market took shape after a selloff connected to concerns about the impact of the omicron variant of coronavirus that causes COVID-19 and comments from Powell.

On Wednesday, Powell said that “the taper need not be a disruptive event in markets, I don’t expect that it will be. It hasn’t been so far—we telegraphed it,” testifying for a second day in front of lawmakers about the state of the economy in the face of the COVID-19 pandemic.

Appearing before the House Financial Services panel, Powell reiterated on Wednesday that the new strain of the coronavirus that causes COVID-19 may warrant an accelerated pace of reducing monthly purchases by the Fed, with an eye toward ending them entirely sooner than later, echoing remarks that shook markets in Tuesday’s session.

Markets appeared to be in a more sanguine mood, even before Powell’s Wednesday testimony, as investors parsed private payrolls in the U.S., which rose by 534,000 in November, according to the ADP National Employment Report released Wednesday. Economists polled by The Wall Street Journal had forecast a gain of 506,000 private-sector jobs in November.

The ADP results come ahead of the closely watched November payrolls data that will be released on Friday.

“U. S. markets have shaken off yesterday’s surprise at Fed chair Jay Powell’s hawkish tilt, opening higher after the latest ADP employment report showed that 534k jobs were added in November, reinforcing the narrative that the U.S. economy is ticking along just fine,” wrote Michael Hewson, chief market analyst at CMC Markets UK, in a note. 

Tuesday’s downturn also was precipitated by comments from Moderna 

CEO Stéphane Bancel, who expressed doubts about extant vaccines against the omicron variant, which the World Health Organization on Friday designated as a variant of concern because they fear it may be more transmissible and harder to immunize against due to the mutations in its so-called spike protein.

Read: ‘Don’t freak out’: Omicron is bound to disrupt supply chains. The question is, how bad will it be?

Analysts said investors will remain laser focused on updates over the omicron variant, with data expected over the next two weeks or so.

“While Powell decided to retire the phrase transitory when discussing inflation, the fact is that this latest variant runs the risk of ensuring this current hawkish tone is in itself somewhat temporary in nature,” said Joshua Mahony, senior market analyst at IG, in a note to clients.

“With the risk of future lockdowns and economic closures, comments from the Fed and BOE should be taken with a pinch of salt given how much they could change once we find out the full extent of this variant,” said Mahony.

The U.S. is reportedly set to announce further travel restrictions this week, among them a requirement that all incoming air travelers be tested for COVID within a day of their flight. Details are being completed ahead of a planned speech from President Joe Biden on Thursday, where he is expected to detail the country’s plan to control the pandemic this winter.

In other economic data, a closely followed index of U.S.-based manufacturers rose to 61.1 in November from 60.8 in the prior month, the Institute for Supply Management said Wednesday. That matched the forecast of economists polled by The Wall Street Journal. Any number above 50 signifies growth. A separate reading from IHS Markit showed that November U.S. manufacturing PMI dropped to 58.4 vs initial 59.1.

Looking ahead, the Fed’s Beige Book of economic conditions are set to be released at 2 p.m. Eastern.

Crude oil was also rebounding strongly from a sharp selloff on Tuesday. January West Texas Intermediate crude climbed 4.5% to $69.12 a barrel, while global benchmark Brent

jumped 4.9% to $72.64 a barrel. Goldman Sachs strategists said the oil market reaction has been “excessive” in relation to the omicron variant.

Which companies are in focus?
  • Groupon IncGRPN announced Wednesday that it has named Zappos veteran Kedar Deshpande to be the company’s next chief executive. Deshpande spent the past decade at Zappos in a variety of roles, including as CEO.

  • Shares of GlobalFoundries

     were rising Wednesday after the semiconductor fabricator, benefiting from the continuing global chip shortage, reported a 56% jump in third-quarter revenue.

How are other assets trading?
  • Gold futures

    rose 0.8% to $1,790.30 an ounce.

  • The ICE U.S. Dollar Index
    a measure of the currency against a half-dozen other monetary units, was down 0.2% at 95.853.

  • The 10-year Treasury note yields

    around 1.48%, from 1.440% on Tuesday at 3 p.m. ET. Prices for Treasurys fall as yields rise.

  • The Stoxx Europe 600

     closed 1.7% higher and London’s FTSE 100 

    rose 1.6%.

  • In Asia, the Shanghai Composite 

    rose 0.3%, while the Hang Seng Index 

    gained 0.7% and Japan’s Nikkei 225

    rose 0.4%.

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