Wall Street falls on Omicron worries ahead of Fed meeting

US stocks fell on Monday on worries about the Omicron coronavirus variant ahead of a Federal Reserve meeting later this week, while investors watched Apple close in on $3 trillion in market capitalization.

Seven of the 11 major S&P 500 sector indexes fell, with only defensive stocks including consumer staples (.SPLRCS), utilities (.SPLRCU) and real estate (.SPLRCR) gaining.

Travel-related stocks fell as the fast-spreading Omicron variant now accounted for around 40% of COVID-19 infections in London and at least one death in the United Kingdom. 

Carnival Corp's (CCL.N) shares fell nearly 6.9% to lead declines among cruise operators, while the S&P 1500 airlines index (.SPCOMAIR) shed 4.6%.

"The big unknown is still the Omicron variant and we don't know just yet how that may affect markets and the economy, but as long as that uncertainty exists the volatility is probably going to remain higher," said Randy Frederick, managing director of trading and derivatives at Charles Schwab.

The CBOE Market Volatility index (.VIX), a gauge for investor anxiety, spiked 2.2 points by early afternoon trading.

Apple Inc's (AAPL.O) shares fell 1.1%, reversing gains from earlier after J.P. Morgan raised its price target on the iPhone maker's stock to the highest on Wall Street. It was poised to become the first company in the world to hit $3 trillion in market value.

"When you see big companies like (Apple) do well, it basically means that people are gravitating towards quality. Big companies that are very profitable, that have very strong cash flows are really considered a safe haven in many cases," Frederick said.

The Fed's policy decision still remains a top event for markets, with bets running high that the US central bank will hint at a faster tapering of asset buying and an earlier start to raising interest rates.

"Everyone is focused on the Fed this week and what guidance we get in terms of bond purchases and interest rates. There's an expectation that there will be an acceleration of tapering, and there's a little anxiety leading up to that," said Ryan Jacob, chief portfolio manager at Jacob Internet Fund.

A Reuters poll of economists sees the central bank hiking key interest rates from near zero to 0.25%-0.50% in the third quarter of next year, followed by another in the fourth quarter.

Positive updates about vaccines and antibody cocktails to combat the new COVID-19 variant, along with a recent reading on inflation that was in line with consensus pushed the S&P 500 (.SPX) index to a record closing high on Friday.

At 11:47 a.m. ET the Dow Jones Industrial Average (.DJI) was down 293.85 points, or 0.82%, at 35,677.14, the S&P 500 (.SPX) was down 34.99 points, or 0.74%, at 4,677.03, and the Nasdaq Composite (.IXIC) was down 185.51 points, or 1.19%, at 15,445.09.

Pfizer Inc (PFE.N) rose 5.3% as it agreed to acquire Arena Pharmaceuticals (ARNA.O) in a $6.7 billion all-cash deal. Arena's shares surged 83.3%.

Declining issues outnumbered advancers for a 2.65-to-1 ratio on the NYSE and a 2.98-to-1 ratio on the Nasdaq.

The S&P index recorded 38 new 52-week highs and four new lows, while the Nasdaq recorded 28 new highs and 237 new lows.

(Source: Reuters)

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