U.S. stocks extended their losses at the start of trading on Tuesday as investors await the Federal Reserve’s policy-setting meeting amid worries over fast-approaching rate hikes and a lackluster start to earnings season. The International Monetary Fund’s downgrade on its economic forecasts due to uncertainty around Omicron and inflation also weighed on markets.
All three major indexes shed 2% or more at open, continuing a weekslong losing streak for equities. The Dow Jones Industrial Average plunged 680 points, or 1.98%, while the S&P 500 dipped 2.36%. The Nasdaq Composite declined 2.63% to start the day.
The downward momentum in stocks has been fueled by escalating worries around monetary policy as the Federal Reserve looks to intervene on rising inflation levels more aggressively than previously anticipated with tighter policy and rate hikes. Investors are bracing for the central bank’s January monetary policy meeting, set to begin today, followed by a new monetary statement and press conference with Fed Chair Jerome Powell on Wednesday. Although the Fed signaled it would raise interest rates multiple times this year, an increase is not expected this week.
“The Fed is in a very tough spot,” MJP Wealth Advisors President Brian Vendig told Yahoo Finance Live. “They know history has shown that if they move too quickly on interest rates, it adds to the risk of moving the economy into a slowdown and the risk of a recession.”
The CBOE volatility index, or VIX, closed Monday at about 29.90 after crossing above 37 in intraday trading, its highest level since November 2020. In their newsletter, Nicholas Colas and Jessica Rabe of DataTrek Research sounded the alarm on recent jumps by the so-called “fear gauge.” The VIX closed last week’s trading at 29 to pass the initial 28 level DataTrek deemed significant, or “the first statistically valid level of market panic.” In Monday’s session, the VIX hovered around 38 before retreating, briefly passing the next level the firm said to watch for: 36.
“If you are trading this market, we continue to advise caution,” the DataTrek founders said. “Clarity on Fed policy will not come until Wednesday’s FOMC meeting, and even then, commentary from the Fed and Chair Powell may be insufficient to calm investors.”
With corporate earnings underway, stock watchers looking to fourth-quarter reports for relief from inflation jitters have found little reason for optimism so far. Goldman Sachs chief U.S. equity strategist David Kostin pointed out that of 64 S&P 500 companies that have reported results since the season began, a slightly below average 52% have beaten analyst consensus earnings estimates.
More concerning, according to Goldman, is a lack of guidance from companies amid unpredictable inflation and COVID-related conditions.
“Investors are most interested in forward-looking guidance from management, and recent information on that front has been concerning,” Kostin said. “Five of the six S&P 500 firms that provided formal 1Q 2022 guidance following 4Q results lowered expectations.”
LPL Financial equity strategist Jeff Buchbinder had a more upbeat take: pointing out that despite supply chain disruptions, wage and other cost pressures, and the Omicron COVID-19 variant, with the S&P 500 constituents that reported so far, index earnings are still tracking to 5% upside, in line with the long-term historical average.
“The volatility we’ve seen this year is uncomfortable, but it is well within the range of normal based on history,” Buchbinder wrote in a note.
“The S&P 500 has averaged three pullbacks of 5% or more per year and one correction of at least 10% per year over its long history,” he said. “After just one 5% dip last year, and huge gains off the 2020 lows, we were due for a dip.”
10:43 a.m. ET: Consumer confidence slips, while spending conditions hold strength
U.S. consumer confidence dipped slightly in January, but more consumers reported plans to purchase homes, automobiles and other big-ticket items despite waining optimism around macroeconomic conditions in the near term.
The Conference Board reported its consumer confidence index ebbed to a reading of 113.8 this month from a slightly downwardly revised 115.2 in December. Economists forecasted the index declining to 111.1 from the previously reported reading of 115.8 in December, according to Bloomberg consensus estimates.
“The Present Situation Index improved, suggesting the economy entered the new year on solid footing,” the Conference Board’s senior director of economic indicators Lynn Franco said. “However, expectations about short-term growth prospects weakened, pointing to a likely moderation in growth during the first quarter of 2022.”
9:55 a.m. ET: IMF cuts world growth forecast, citing Omicron’s impact
The International Monetary Fund lowered its economic forecasts for the United States, China and the global economy, indicated uncertainty about the pandemic, inflation, supply disruptions and U.S. monetary tightening have placed a dent in the agency’s outlook.
“We project global growth this year at 4.4%, 0.5 percentage point lower than previously forecast, mainly because of downgrades for the United States and China,” Gita Gopinath, the IMF’s No. 2 official, wrote in a blog on the latest update of the World Economic Outlook.
9:34 a.m. ET: Futures muted after turbulent trading session
Here were the main moves in markets at the start of the trading session:
S&P 500 (^GSPC): -66.22 (-1.50%) to 4,343.91
Dow (^DJI): -364.86 (-1.06%) to 33,999.64
Nasdaq (^IXIC): -236.63 (-1.71%) to 13,618.50
Crude (CL=F): +$0.10 (+0.12%) to $83.41 a barrel
Gold (GC=F): -$1.00 (-0.05%) to $1,840.70 per ounce
10-year Treasury (^TNX): +1.4 bps to yield 1.7490%
9:07 a.m. ET: US home price growth slows for fourth straight month
Home price growth in the U.S. continued to moderate in the penultimate month of 2021.
Standard & Poor’s reported that its S&P CoreLogic Case-Shiller national home price index posted a 18.8% annual gain in November, down from 19% from October. The 20-City Composite posted a 18.3% annual gain, down from 18.5% a month earlier. The 20-City results came in marginally higher than analysts’ expectations of an 18% annual gain, according to Bloomberg consensus estimates.
“Despite this deceleration, it’s important to remember that November’s 18.8% gain was the sixth-highest reading in the 34 years covered by our data (the top five were the months immediately preceding November),” said Craig J. Lazzara, managing director and global head of index investment strategy at S&P DJI, in a statement.
7:33 a.m. ET: Pfizer Inc and BioNTech commence research on Omicron-focused vax
Pfizer Inc (PFE) and BioNTech SE (BNTX) have began a clinical trial to test a new version of their COVID-19 vaccine specifically geared to target the Omicron variant, which has been reported to evade some of the protection provided by the original two-dose vaccine regimen.
Shares of Pfizer were down 2.37% in early trading at $51.54 a piece, while BioNTech was up 2.36% to $150.98 per share.
The companies are expected to test the immune response offered by the new Omicron-based vaccine both as a three-shot regimen in unvaccinated people and as a booster shot for people who have already previously received two doses of the original vaccine.
7:00 a.m. ET: Stock futures drop ahead of FOMC meeting
Here’s how futures tied to the S&P 500, Dow, and Nasdaq fared in early trading:
S&P 500 futures (ES=F): -56.25 points (-1.28%), to 4,347.50
Dow futures (YM=F): -249.00 points (-0.73%), to 34,004.00
Nasdaq futures (NQ=F): -246.00 points (-1.82%) to 14,237.00
Crude (CL=F): +$0.21 (+0.25%) to $83.52 a barrel
Gold (GC=F): -$3.90 (-0.21%) to $1,837.80 per ounce
10-year Treasury (^TNX): 0.00 bps to yield 1.735%
6:00 p.m. ET Monday: Futures muted after turbulent trading session
Here’s how contracts on Wall Street’s main indexes fared heading into the overnight session:
S&P 500 futures (ES=F): -2.50 points (-0.06%), to 4,401.25
Dow futures (YM=F): +17.00 points (+0.05%), to 34,270.00
Nasdaq futures (NQ=F): -17.25 points (-0.12%) to 14,483.75
Crude (CL=F): +$0.76 (+0.91%) to $84.07 a barrel
Gold (GC=F): +$1.80 (+0.10%) to $1,843.50 per ounce
10-year Treasury (^TNX): -0.7 bps to yield 1.750%
Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc