The sell-off of U.S. stocks in 2022 gained intensity Monday as investors dumped risky assets like equities in anticipation of a less friendly Federal Reserve.
The Dow Jones Industrial Average lost more than 1,000 points at one point and the S&P 500 pulled back more than 10% from its record close Jan. 3.
The Dow Jones Industrial Average fell about 540 points, or 1.5%, falling for a seventh straight day. At its lows of the day, the blue-chip index shed about 1,115 points. The S&P 500 lost 1.7% and headed for its worst month since March 2020. The benchmark is down more than 10% from its intraday high. The Nasdaq Composite declined 6%, falling deeper into correction territory down more than 16% from its intraday high.
“I think there’s more pain to come,” said Wharton School finance professor Jeremy Siegel on CNBC’s “Squawk Box.” “When a bear market comes, it doesn’t spare the good stocks or the bad stocks. I mean, they all go down.”
Monday’s pullback put the S&P 500 down roughly 10% this month, on pace for its worst January performance on record. The Dow was also headed for its biggest one-month loss since March 2020, falling more than 7%. The Nasdaq, meanwhile, has dropped about 14% in January and is on pace for its worst month since October 2008 — when it plunged 17.7%.
The rout this year initially centered around the Nasdaq and technology stocks with investors rotating out of shares whose valuations look less attractive as rates rise. While the 10-year Treasury yield was lower Monday, the benchmark rate has jumped about a quarter of a percentage point in 2022.
However, lackluster earnings reports and geopolitical tensions have caused the selling to spread across equity markets.
Monday’s sell-off was broad-based with less than 20 stocks in the S&P 500 and just 3 names in the Dow trading positively. Signature Bank led losses on the S&P 500, falling more than 7%. Visa was the top decliner on the Dow with a more than 3% loss.
Tech was the hardest hit sector with Microsoft, Apple and Alphabet all losing about 2%. The more speculative Tesla lost 5%, bringing its year-to-date losses to more than 15%. Netflix continued its decline post-earnings report, losing more than 5%.
The CBOE Volatility Index (VIX), known on Wall Street as the market’s “fear gauge,” hit its highest level since November 2020, surpassing the 38 level at its intraday highs. The market action Monday followed a brutal week on Wall Street in the face of mixed company earnings and worries about rising interest rates.
The fourth-quarter earnings season has been a mixed bag. While more than 74% of S&P 500 companies that have reported results have topped Wall Street estimates, a couple of key firms let down investors last week, like Netflix and Goldman Sachs.
Investors are eyeing the Fed’s policy meeting, which wraps up on Wednesday. Market participants will be looking for any signals on how much the central bank will raise interest rates this year and when it will start.
“The greatest fear is how the Fed reacts and keeps this balancing act,” Ann Miletti, head of active equity at Allspring Global Investments, told CNBC’s “Squawk on the Street” on Monday. “There’s going to be a lot of turbulence as we march through these next couple of months.”
The Federal Open Market Committee, which sets interest rates, is meeting with expectations that it will not act at the January meeting but will tee up the first of multiple rate hikes starting in March. In addition, the Fed is expected to wrap up its monthly asset purchase program that same month.
At his post-meeting news conference, Chairman Jerome Powell also could signal when the Fed will start to unwind its mammoth balance sheet.
Goldman Sachs said over the weekend that it sees risks rising that the Fed could enact even more than the four quarter-percentage-point hikes that the market has priced in for this year. The firm also said the Fed might start running off the nearly $9 trillion in assets it is holding in July.
Investors also monitored geopolitical tensions as Russia built up its military presence at the Ukrainian border. President Joe Biden is set to speak with European leaders Monday amid fears of a possible Russian invasion of Ukraine.
To be sure, some analysts believe the pullback is overdone. JPMorgan’s top stock strategist Marko Kolanovic said in a note that the sell-off in equity markets is overblown.
“The recent pullback in risk assets appears overdone, and a combination of technical indicators approaching oversold territory and sentiment turning bearish suggest we could be in the final stages of this correction,” Kolanovic said. “While the market struggles to digest the rotation forced on it by rising rates, we expect the earnings season to reassure, and in a worst case scenario could see a return of the ‘Fed put.'”