Markets sell off after Powell's omicron and inflation warnings

Dow dropped 652 with selling into the close, decliners over advancers 5-1 & NAZ declined 245.  The MLP index fell 3+ to the 173s & the REIT index dropped a big 9+ to the 469s.  Junk bond funds continued to be sold along with stocks.& Treasuries remained in very heavy demand taking the yield on the 10 year Treasury down an enormous 9 basis points to 1.44%.  Oil fell 3+ to the 66s & gold was off 8 to 1777 (more on both below).

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Federal Reserve Chair Jerome Powell acknowledged that he now expects high inflation to continue into the middle of 2022, stating that the gov should no longer push what had been a recurring slogan of it being "transitory."  During a hearing before the Senate Banking Committee, Powell noted that when the Fed says "transitory," they do not mean it as just referring to how long inflation will last, as the average person might expect.  Still, he said it is time to stop using the word.  "So I think the word transitory has different meanings to different people," Powell told Sen Pat Toomey,. "To many, it carries a time, a sense of short-lived. We tend to use it to mean that it won't leave a permanent mark in the form of higher inflation. I think it's probably a good time to retire that word and try to explain more clearly what we mean."  Powell claimed later that the Fed will not sit idly by& let inflation continue to climb indefinitely.  "We will use our tools to make sure that higher inflation does not become entrenched," he said.  In the Carter administration, the Fed jacked up interest rates as a means of combating inflation, which ultimately worked.  Powell admitted that the Fed was wrong in its prediction of how long the current high inflation will last & that they now believe it will continue well into 2022.  "I think we can now see certainly through the middle of next year," Powell said, adding that "forecasting is not a perfect art, as you may have noticed."  Sen John Kennedy certainly noticed.  "I realize that no one is clairvoyant but I think it’s fair to say that the experts who have been advising you about the future rate of inflation have pretty much the same credibility as those late night psychic hotlines you see on TV," he said.  Powell then explained that the ongoing supply chain issues plaguing the nation have thrown a wrench into their projections.  "So, I think what we missed about inflation was the we didn't predict the supply side problems. And those are highly unusual and very difficult, very non-linear, and it's really hard to predict those things," he added.  "But that's really what we missed. And that's why all of the professional forecasters had much lower inflation projections."

Powell admits Fed got it wrong on inflation, won't push 'transitory' narrative

As Americans bought gifts during the peak Thanksgiving shopping weekend, the discovery of the omicron variant made headlines & prompted action by public health officials.  National Retail Federation CEO Matt Shay said that the coronavirus strain could shake up spending patterns this holiday season & direct more $s toward electronics, toys, apparel & other items instead of vacations & movie tickets.  “We know, unfortunately, that when the variants have had a real impact on the economy, the goods side of the economy has actually benefited from that because people change behavior away from the experience side of the economy and spend more time and more dollars engaged in the goods side of the economy,” he added.  Holiday sales are expected to grow to an all-time high of $843-$859B of sales in Nov & Dec, which represents growth of 8.5-10.5% this year.  The trade group reiterated its rosy forecast for the holiday season.  Experience-based gifts — such as travel vouchers, restaurant gift cards & spa days — are expected to make a comeback this year as more Americans feel comfortable getting out again.  About 43% of consumers said they were planning to splurge on experiences & service gifts this holiday season, according to a survey of roughly 1500 US consumers in Aug by consulting firm Accenture.  The trend was more pronounced among younger generations, with 53% of millennials & 50% of Gen Z saying they were planning to spend on experiences.  Shay said the trade group feels confident about consumers' appetite to spend, despite the new variant.  He said the backdrop of the pandemic looks very different this holiday season, since more Americans are fully vaccinated.  “We think there’s a reason to be aware, a reason to follow the kinds of protocols we have been following all along about safe practices and getting vaccinated, but there’s not a reason to panic,” he continued.

Omicron fears could shift spending away from experiences, trade group says

White House chief medical advisor Dr Anthony Fauci said that 226 cases of the highly mutated omicron Covid-19 variant have been detected across 20 countries so far, but US officials haven't confirmed a case in the states yet.  The variant, which first emerged in South Africa about a week ago, has more than 30 mutations to the spike protein alone.  That's the key part of the virus that allows it to bind to human cells & infect the body.  It also makes scientists worry that it could evade vaccine protection or may be far more infectious than the already highly contagious delta variant that's caused a surge in cases across globe in recent months.  “This mutational profile is very different from other variants of interest and concern, and although some mutations are also found in delta, this is not delta,” Fauci told reporters.  “These mutations have been associated with increase transmissibility and immune evasion.”  There are several other mutations to the virus that scientists haven't seen before & don't know how they will change how the virus behaves or spreads, he added.

Fauci says omicron has already been found in 20 countries, but not yet in U.S.

Gold prices ended lower as comments from the head of the Federal Reserve suggested that the central bank might speed up tapering of its monthly asset purchases when it meets next month.  Federal Reserve Chair Jerome Powell told lawmakers that it would be appropriate for policy makers to consider speeding up the wind-down of the central bank's monthly asset purchases when they meet next month, prompting further declines in benchmark US stock indices.  Prices for the precious metal had been trading higher in the wake of some downbeat comments on the vaccine fight against the new COVID variant from Moderna's (MRNA) CEO, which prompted a decline in US stock market & raised the appeal of haven gold.  But the selloff in US stocks intensified, likely prompting some investors to sell gold to cover margin calls.  The most active Feb gold contract fell $8 (0.5%) to settle at $1776 an ounce, after trading as high as $1811 during the session.  Based on the most-active contracts, prices lost 0.4% for the month of Nov.  Gold futures also got a temporary boost after data revealed that the Chicago Business Barometer, also known as the Chicago PMI, fell to 61.8 in Nov from 68.4 in the prior month.  It is the lowest reading since Feb.  The index of consumer confidence also dropped to 109.5 from 111.6 in Oct, the Conference Board reported.  It was the 4th decline in the past 5 months.

Gold settles lower on Powell testimony amid concerns about omicron

Oil futures fell sharply, suffering their worst monthly decline since Mar 2020, with prices under renewed pressure after the chief executive of Moderna (MRNA) warned that vaccines are likely to be less effective against the omicron variant of the coronavirus that causes COVID-19.  West Texas Intermediate (WTI) crude for Jan fell $3.77 (5.4%) to settle at $66.18 a barrel.  Prices based on the front month fell nearly 21% for the month & also settled at the lowest since Aug 23.  Global benchmark Jan Brent crude, which expired at the end of the trading session, dropped $2.87 (3.9%) to end at $70.57 a barrel — down over 16% for the month.  Feb Brent, which is now the front-month futures contract, lost $3.99 (5.5%) to $69.23 a barrel.  Front-month WTI & Brent crude futures marked their biggest monthly net & percentage declines since Mar 2020 — the same month the World Health Organization declared the start of the COVID-19 pandemic.  WTI crashed below zero $s a barrel in Apr 2020.  Crude futures tumbled, alongside a renewed global fall in equities, after MRNA said that existing vaccines will likely be less effective against the omicron variant discovered late last week in southern Africa.  Oil dropped sharply Fri, with the US benchmark plunging 13%, after the discovery of the variant in southern Africa, with several countries moving to restrict flights from the region.  Crude bounced in Mon trade, but ended the session with modest gains before coming under renewed pressure.  The price drop & accompanying worries about the variant's effect on travel & activity are seen putting pressure on OPEC+ to pause monthly increases in oil production that would have lifted output by another 400K barrels a day in Jan.  OPEC+ is also weighing its response to the US decision last week to release 50M barrels of crude from its Strategic Petroleum Reserve — a move that was accompanied by releases in 5 other countries, including China & India.  OPEC is scheduled to hold technical meetings tomorrow & Thurs, ahead of the OPEC & a non-OPEC ministerial meeting, also planned for Thurs.

Oil prices suffer steepest monthly decline since March 2020

After yesterday's modest recovery, the Dow finished down 370 in the first 2 days of this week.  Dreary news, from the Fed tapering in its bond buying program to fears about the virus fighting back hard, is spooking investors.  Lower oil prices gives a mixed message.  Consumers like that but it also spells trouble for the economic recovery.  The Dow dropped 1365 in Nov & is back to where it was in May (on the way up).  More tough times lie ahead for the stock market.

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