Another volatile bout of trading on Wall Street ended in a broad pullback for stocks on Tuesday, as investors grapple with economic red flags and uncertainty over the Federal Reserve’s aggressiveness in tackling the rise in inflation.
Stock indices fell sharply at the start of the day, then rose well above their lows by late afternoon. Another wave of selling in the last hour of trading pushed them down further. Tech stocks were the biggest drag on the market.
The S&P 500 fell 1.2% after losing as much as 2.8%. The benchmark has fallen steadily all month and is now down 9.2% from the all-time high it hit on Jan. 3. The Dow Jones Industrial Average slid 0.2% and the tech-heavy Nasdaq fell 2.3%.
Rising inflation has weighed on businesses and consumers, and the Federal Reserve is expected to combat it in 2022 by raising interest rates. Investors fear that the Fed may act too late or be too aggressive. The central bank releases its latest policy statement on Wednesday.
The virus pandemic still hangs over the economy and threatens to stall progress with each new wave. The International Monetary Fund cited the omicron variant as the reason it lowered its forecast for global economic growth this year.
And a potential conflict between Russia and Ukraine threatens to further drive up energy prices while forcing more countries to focus on war rather than inflation and COVID-19.
Wall Street faces signs of slowing economic growth due to COVID-19 and a Fed that can’t quite go back on what it said it would do, chief strategist Barry Bannister said shares in Stifel.
“The market has accepted that and it’s a big deal,” he said. “Fiscal and monetary tightening together are tough on financial assets as they emerge from a heartbreaking stimulus spree.”
Still, the fact that major stock indexes hit their lows for the day could be a sign that some investors are betting a gloomier outlook for economic growth could prompt the Fed to take a more measured approach to raising interest rates. .
“Weaker economic growth projections have helped push investors to breathe a sigh of relief that the Fed won’t have to be too aggressive,” said Sam Stovall, chief investment strategist at CFRA.
The S&P 500 fell 53.68 points to 4,356.45. This week, the index came close to entering a “correction,” which, to market watchers, means a 10% drop from a peak.
The Dow fell 66.77 points to 34,297.73. The blue-chip index was down 818 points in morning trading.
The Nasdaq fell 315.83 points to 13,539.29. The index initially fell 3.2%. It entered a correction last week and is now down more than 15% from its November 19 high.
Small company stocks also lost ground. The Russell 2000 Index fell 29.48 points, or 1.5%, to 2,004.03.
Major indices got off to a similar start to trading on Monday and fell for most of the day before a late buying spree pushed them to a higher close. This bounce may have been just a “headache,” Bannister said, adding that more dips are likely in store for the market.
Even though the S&P 500 managed to pull off a gain after its rollercoaster ride on Monday, a measure of nervousness on Wall Street known as the VIX index remained elevated. This suggests that stress continues to build in the system, with markets in a “high-speed rotation cycle”, UBS strategists wrote in a report.
VIX futures, meanwhile, indicate that investors are preparing for a high level of near-term volatility, but less in the months ahead. It’s a reversal of their typical behavior last year.
Tech stocks again led the losses as investors worried about rising interest rates. Higher interest rates tend to make stocks of high-flying technology companies and other expensive growth stocks less attractive. Microsoft fell 2.7%.
Retailers and communications companies also fell. Home Depot fell 1.3% and Netflix 5.4%. US crude oil prices rose 2.7% and helped energy stocks rise. Occidental Petroleum jumped 8.1%.
American Express jumped 8.9% for the S&P 500’s biggest gain after the credit card company reported fourth-quarter profits rose 20% from a year earlier.
Bond yields rose. The 10-year Treasury yield rose to 1.78% from 1.74% on Monday night.
Associated Press Business writer Stan Choe contributed.