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Fed Taper, Oil Prices, Vaccine Makers: 3 Things to Watch

Stocks tumbled on Tuesday after Federal Reserve Chair Jerome Powell said the risk of inflation has increased and the central bank could speed up the timeline for cutting back on bond buying to support the economic recovery.

Powell told the Senate Banking Committee that it was time to retire the word “transitory” from the Fed’s inflation vocabulary, though he hasn’t backed off on his view that price increases are temporary and would eventually ease back down.

Ominous words from vaccine executives also dampened Wall Street’s mood on Tuesday. Moderna’s CEO told the Financial Times that current Covid-19 vaccines could see a big drop in effectiveness against the new Omicron variant.

The Dow Jones Industrial Average fell more than 600 points, with just a half-hour of trading left in the U.S. session.

Omicron is the market’s latest buzz kill after signs the U.S. economy was getting back in gear. Travel restrictions are popping up around the world, though limited to travelers from certain countries in Africa, where the new variant was first identified.

Still, stocks of travel and leisure companies slumped over concerns about prolonged slowdowns.

U.S. consumer confidence declined in November over worries about the rising cost of living and the enduring pandemic.

Here are three things that could affect  markets tomorrow:

1. Powell’s words

The Federal Reserve chief’s hint that the bond tapering would be moved up and completed at a faster pace pushed the U.S. Dollar to a strong rally against other major currencies Tuesday, and investors will likely still be digesting the significance on Wednesday.

Speaking to the Senate Banking Committee, Powell said, "At this point, the economy is very strong and inflationary pressures are higher, and it is therefore appropriate in my view to consider wrapping up the taper of our asset purchases, perhaps a few months sooner."

At the Fed's November meeting, it said it would reduce bond purchases by $15 billion a month. 

Furthermore, Powell said the risk of persistently higher inflation has increased, and he expects high inflation through next year, although the baseline expectation is that it will move back down over the course of 2022.

2. Oil prices

The major oil producing nations are set to meet this week about planning production levels for January. Some expect they might lower production to answer the U.S. and other countries getting together to release oil from their national reserves to ease gasoline prices. But the work has been done for them in the last few days.

Oil prices have plunged since last week’s announcement of the Omicron variant of Covid, sparking global concerns about economic growth. Crude oil fell another 6% on Tuesday, to below $70 a barrel.

3. Pharmaceuticals in the news

Moderna Inc (NASDAQ:MRNA) shed 3.5% on Tuesday after CEO Stephane Bancel told the Financial Times that existing Covid vaccines would struggle to cope with the Omicron variant, predicting a "material drop" in their effectiveness.

Fellow pharmas also struggled. Regeneron Pharmaceuticals Inc (NASDAQ:REGN) fell more than 1% after releasing a statement on Tuesday indicating that analysis suggested its Covid-19 antibody cocktail could have reduced activity against the new variant. Merck & Company Inc (NYSE:MRK) shares were down 0.6% as it awaited an advisory panel meeting at the Food and Drug Administration, which is considering its antiviral pill.