U.S. ended sharply lower Thursday as unemployment claims ticked higher and worries accelerated over resurgent Covid cases.
The Nasdaq Composite Index fell 385, or 2.5%, to 15,180. The Dow Jones Industrial Average fell 30 points, or 0.01%, to 35,898. The S&P 500 index dropped 41 points, or 0.9%, to 4,668.67 after earlier trading near its all-time high.
Weekly U.S. jobless claims came in at 206,000, up slightly from last week and ahead of estimates. The numbers remain near 50-year lows.
Earlier Thursday, stocks had surged, building on positive reaction to Wednesday's Fed-inspired rally.
France moved to bar visitors from the UK where cases of the omicron Covid variant are rising sharply, Reuters reported. Other European nations are also moving to curb travel.
Late Wednesday, the Centers for Disease Control projected that U.S. Covid fatalities could double by early January to more than 2,200 a day. Cornell University returned to online classes and finals after more than 900 vaccinated students contracted the omicron variant.
Fears of renewed shutdowns and economic impacts came as the Federal Reserve moved to reduce asset purchased aimed at supporting the U.S. economy.
Fed Chairman Jerome Powell said yesterday that the U.S. economy "no longer needs increasing amounts of policy support" and outlined plans to reduce the amount of bonds the central bank purchases each month, with an aim to exhaust the pandemic-era program by March. While not explicitly stated, the deadline tees-up rate hikes for shortly afterwards, with fresh projections from other Fed economists indicating another two moves higher before the end of 2022.
The CME Group's FedWatch tool, in fact, is showing a 62.2% chance of a rate hike in May of next year, up from 59.9% prior to the Fed decision and around 35% at the beginning of November.
While a relatively hawkish pivot from his prior views on inflation, which he continues to be troubled by, Wednesday's Fed announcements were largely anticipated by investors, who had entered the day with a cautious tone, and thus markets rallied firmly into the close of the session on surging trading volumes of 12.2 billion shares.
They were also buttressed by the fact that Powell said no decisions have been made with respect to running down the Fed's $8.2 trillion balance sheet, a move that would add an accelerated dimension to any rate hikes.
"While we expect increased stock market volatility as the Federal Reserve embarks on normalizing policy, equity markets should end the year higher, as the economy still remains strong, which should lead to continued earnings growth," said Richard Saperstein, chief investment officer at New York-based Treasury Partners. "While many investors are worried about rising inflation, we expect consumer prices to gradually subside in 2022 as supply chains normalize."
Bond market reaction to the Fed decision was muted -- to the point of torpor -- giving rise to concerns that central bank leaders, Powell included, are downplaying the risks to growth from the recent rise in Omicron infections.
The U.S. recorded 201,786 new Covid infections Monday, according to data from the CDC, taking the seven-day average to just over 120,000, the highest since September.
Apple (AAPL) - Get Apple Inc. Report, in response, has indefinitely delayed a formal return to the office for workers around the country, Bloomberg News reported, following its decision earlier this week to require masks at its U.S. retail stores.
In overseas markets, Europe's Stoxx 600 was marked 1.7% higher by mi-day trading in Frankfurt as traders played catch-up to last night's rally on Wall Street, while in Asia, the region-wide MSCI ex-Japan index gained 0.51% and the Nikkei 225 ended 2.13% higher Tokyo at 29.066.32 points.