Dow Plunges 600 Points As Omicron ‘Rages Through The World’ And Manchin Rejects Biden's $1.8 Trillion Plan

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Topline

Stocks tumbled Monday morning after a slew of negative headlines over the weekend extended a two-day sell off, with surging Covid-19 infections sparked by the omicron variant threatening to stifle the economic recovery and Sen. Joe Manchin (D-W.Va.) effectively killing President Joe Biden’s sweeping social spending proposal over concerns of heightened inflation.

Key Facts

The Dow Jones Industrial Average fell 615 points, or 1.7%, shortly after the market opened, while the S&P 500 shed 1.4% and the tech-heavy Nasdaq 1.5%—declines that pushed each index down more than 3% over the past week.

In a morning email, Oanda senior analyst Craig Erlam cited a “feast of negative headlines” over the weekend for the dampening investor sentiment, pointing out growing nerves over the omicron variant drove a nearly 2% sell-off in equity markets across Europe Monday morning. 

Reflecting uncertainty over the pandemic, a wave of stocks tied to the economic recovery tumbled Monday, with Devon Energy and Occidental Petroleum falling about 4% apiece, while vaccine stocks Moderna and Pfizer jumped 1% each.

Additionally, Erlam said investors could be disappointed about Biden’s Build Back Better plan—which proposes nearly $1.8 trillion in spending targeting clean energy, education and middle-class tax credits—”collapsing in a heap” after Manchin on Sunday rejected to support the plan due to decades-high inflation that’s accompanied the government’s pandemic-era spending. 

Though Manchin has yet to indicate whether he’ll support a new proposal with some of the same initiatives, the decision will “certainly shave a little off [economic] growth next year,” Erlam says, given that Manchin’s vote is crucial for Democrats to pass legislation in the evenly split Senate.

Clean energy stocks felt the burn Monday, with the S&P Global Clean Energy Index tumbling more than 3%.

Tangent

Though it was initially unveiled as a sweeping $3.5 trillion proposal in July, Democrats’ Build Back Better plan has faced tough opposition from Manchin and fellow moderate Sen. Kyrsten Sinema (D-Ariz.), who’ve both bemoaned the government’s spending amid surging inflation. The White House called Manchin’s pivot on Sunday an “inexplicable reversal” and vowed to “find a way to move forward next year.” Senate Majority Leader Chuck Schumer (D-N.Y.) on Monday said the chamber would move to vote on the measure once lawmakers return from break in early January, forcing Manchin to double down on his rejection. It’s unclear what a new proposal may look like.

Key Background

​​Stocks retreated from record highs this month after November’s inflation reading showed the largest surge in consumer prices in nearly four decades, rattling investors ahead of the Federal Reserve’s policy meeting on Wednesday. A majority of central bank officials—including chair Jerome Powell—have recently suggested that the central bank may have to speed up the tapering of its $120 million monthly bond-buying program in order to curb rising inflation, which could mean future interest rate hikes sooner than expected. However, just as the Fed decided to ease policy, Covid cases across the nation have risen to a three-month high. A pandemic resurgence could force officials to reconsider yanking central bank stimulus measures, even in the face of rapid inflation.

Crucial Quote 

“The one thing that’s very clear, and there’s no doubt about this, is [omicron’s] extraordinary capability of spreading,” Dr. Anthony Fauci, one of the nation’s top infectious disease experts, told Meet the Press on Sunday. “It is just raging through the world… people need to be prudent.”

Further Reading

Manchin Says He Won’t Support Build Back Better—White House Calls It ‘Inexplicable Reversal’ (Forbes)

Fauci: Pfizer’s Possibly Game-Changing Covid-19 Pill Won’t Be Widely Available For ‘Months’ (Forbes)