S&P 500 slips back under 4600 as first US Omicron infection confirmed

• The S&P 500 has eroded most of its gains and is now just 0.4% higher on the day.
• The index is back to the 4580s, having traded as high as 4650 after the open.
• Sentiment seemingly deteriorated in tandem with a pick-up in the newsflow surrounding the global Omicron outbreak.

US equity markets have been on the back foot over the last few hours and have relinquished much of their pre-market gains. The S&P 500 index has dropped back under 4600 and is now just 0.4% higher on the day having been as much as 1.9% higher earlier in the session. The Nasdaq 100, meanwhile, has pared back on gains that had been as much as 1.8% at the start of the session to just 0.2%. The Dow is up by the same amount.

Omicron worries

Sentiment seemingly deteriorated in tandem with a pick-up in the newsflow surrounding the global Omicron outbreak. The number of Covid-19 infections reported in South Africa doubled on Wednesday vs a day earlier and there were separate reports that hospitalisations had also started picking up as infections spread more to the elderly. Moreover, the South African National Institute For Communicable Diseases (NICD) said that the Omicron variant would be able to get around prior immune protection. However, WHO scientists earlier in the day were out saying they believed that the existing vaccines would still provide substantial protection.

More recently, the first Omicron variant infection was reported in the US. The individual, who is fully vaccinated, is only experiencing mild symptoms at the moment and had traveled to South Africa. The detection of further US infections in the days ahead seems inevitable.

Data, Fedspeak & other themes

Aside from Omicron, equity investors have also had to juggle a number of other themes, including tier one US data releases and further Fed speak. Starting with the former; the November ISM manufacturing PMI survey was stronger than expected, with the employment and new orders subindices both picking up and prices paid moderating slightly amid early indications that supply chain disruptions are easing. Whilst this is good news, investors fear that any Omicron-related global travel/trade restrictions could quickly reverse any progress made supply chains.

The November ADP national employment estimate was also released and will solidify expectations that Friday’s headline official NFP number should be strong. The Fed’s Beige Book was released as well on Wednesday and also alluded to underlying US economic strength, early signs of easing supply chain pressures (which is helping costs fall back). The report pointed to the continued difficulties companies are having finding workers, which supports the idea that the labour market remained tight in the first half of November.

Speaking of the Fed; Chairman Jerome Powell appeared before Congress for a second day and reiterated the same hawkish message he offered on Tuesday (retire “transitory”, inflation risks rising, appropriate to discuss faster QE taper). NY Fed President and influential FOMC member John Williams was also on the wires earlier in the session and largely stuck to the script established by Powell, emphasising rising inflation risks/uncertainty. Meanwhile, in Washington, talks to avoid a government shutdown after Friday are ongoing, a theme that will be worth paying attention to on Thursday and Friday.