Dow Falls 400 Points As Omicron ‘Rages Through The World’ And Manchin Rejects Biden’s $1.8 Trillion Plan

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Topline

Stocks tumbled Monday 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.) threatening to kill President Joe Biden’s sweeping social spending proposal over concerns of heightened inflation.

A trader works on the floor of the New York Stock Exchange.

Key Facts

After paring some early morning losses, the Dow Jones Industrial Average fell 433 points, or 1.2%, on Monday, while the S&P 500 shed 1.1% and the tech-heavy Nasdaq 1.2%—declines that pushed each index down more than 3% over the past week.

In an 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 on Monday.

Reflecting uncertainty over the pandemic, vaccine stock Pfizer jumped more than 2% on Monday, while shares of Moderna jumped as much as 7% before falling with the market and ending the day down 6%.

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.

What To Watch For

There’s still a chance Democrats will be able to agree to a deal in the new year. Last week, Manchin reportedly offered to a support a $1.8 trillion Build Back Better bill that included many of the same pre-school and climate change initiatives, but nixed the expanded child tax credit. “Too much is at stake for the economy, and pressure will grow on both sides to reach an agreement in January,” says Oanda senior analyst Ed Moya.

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.”