Stocks rebound after the Dow, S&P 500 and Nasdaq all entered ‘correction’ territory

U.S. stocks plunged in early trading on Monday as investors worried about rising inflation and geopolitical tensions, before catching that ground in afternoon trading as financial markets faltered. were collapsing.

The S&P 500 tumbled in morning trade to enter what the market sees as a “correction” – a decline of 10% or more from its most recent high. The stock market index is down almost 11% from its peak on Jan. 4. This equals the worst start to the year for the S&P 500, according to Bloomberg.

Extending a losing streak, the Dow fell more than 1,000 points on Monday morning, or nearly 3%, to 33,256, and was down about 10% from its January 4 high. extending the recent losing streak since its peak in November to almost 18% – a figure approaching the 20% down marker that defines a “bear” market.

But markets recouped those losses in the afternoon to end the day in positive territory. The S&P 500 closed at 4,410, up 0.3%, while the Dow Jones and Nasdaq rose 0.3% and 0.6%. “The equity sell-off panic quickly turned into a heroic comeback,” analysts at TD Securities said in a report.

Awaiting key Fed decision this week

Investors are increasingly worried about how aggressively the Federal Reserve, which is holding a policy meeting this week, might act this year to rein in rising inflation. Consumer prices jumped 7% in 2021the biggest increase in nearly 40 years.

Wall Street is anticipating the Fed’s first interest rate hike as early as March, and investors are increasingly concerned that the Fed will have to raise rates faster and more often than the central bank had initially indicated.

The Fed’s benchmark short-term interest rate is currently in a range of 0% to 0.25%. Investors now see a nearly 70% chance that the Fed will raise the rate by at least a full percentage point by the end of the year, according to CME Group’s Fed Watch tool.

Fed policymakers will issue their latest statement on Wednesday.

“The trajectory of rate hikes will critically depend on the future pace of inflation and the intersection with wage growth,” Kathy Bostjancic, chief U.S. financial economist at Oxford Economics, said in a note.

Inflation is putting pressure on businesses and consumers as demand for goods continues to outstrip supply. Companies have warned that supply chain issues and rising raw material costs could strain their finances. Retailers, food producers and others have raised the prices of goods to try to offset the impact.

Rising costs are fueling fears that consumers are starting to cut back on spending due to continued pressure on their wallets.

Sara Johnson, executive director of IHS Markit, expects inflation and the withdrawal of fiscal and monetary stimulus to weigh on the economy. The research firm predicted on Monday that growth in gross domestic product – the total value of goods and services – would slow to 4.1% in 2022, from 5.7% last year. By contrast, the United States could get a boost amid signs that the rate of COVID-19 infections linked to the Omicron variant is declining in parts of the country.

On Monday, the energy and materials sectors led the market declines. Tech stocks were among the largest weightings in the market as investors diverted money away from more expensive stocks in anticipation of rising interest rates. Higher rates make stocks of high-flying technology companies and other expensive growth stocks relatively less attractive.

Rising tensions between Russia and Ukraine are also rocking Wall Street. The State Department has ordered the families of employees of the U.S. Embassy in Kyiv, Ukraine, to leave the country and allowed some US government employees to leave because of the potential for Russian military action.


Russian troops massed on the Ukrainian border

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Decisions were made with great caution due to Russia’s continued military build-up and disinformation campaigns, a senior State Department official said. Russia is a major oil producer and experts warn that a major disruption to the country’s supply on the world market could lead to higher energy prices in the United States.

Russia has amassed over 100,000 troops on the border of Ukraine, and although the United States does not know if Russian President Vladimir Putin has made the decision to invade or if a decision is imminent, he has built the military capacity to invade at any time , said one of the officials

Garland K. Long