Wall Street’s turbulent start to 2022 dragged onward Tuesday, as stocks whipsawed and investors remained restless about the Fed and corporate earnings.
It was the second straight day in which markets opened sharply lower and sustained losses throughout the morning, only to surge back dramatically in the homestretch. On Monday, the Dow plunged more than 1,115 points but ended the session with a slight gain. The S&P 500, meanwhile, staged its biggest intraday comeback since the 2008 financial crisis.
Markets have been turbulent for weeks, with major indexes closing lower on 12 of the past 15 days. The S&P 500 has shed nearly 9 percent of its value in the past month, and the Nasdaq is down nearly 15 percent.
“The pace and violence of the sell-off has been jaw-dropping,” said Wedbush managing director Dan Ives.
Analysts say the market gyrations stem from a triple-pronged dose of uncertainty involving monetary policy, geopolitical tensions and the specter of a less-than-inspiring earnings season. Investors are concerned that any one of them could send prices spiraling and are moving to protect themselves.
“People are kind of de-risking their portfolios,” said Wayne Wicker of MissionSquare Retirement. “They are taking their most aggressive bets, and pulling them back.”
Investors were spooked by expectations that the Federal Reserve — which began its two-day policy meeting Tuesday — could tighten monetary policy more aggressively than originally planned to combat decades-high inflation. Policymakers are expected to cease the emergency bond-buying program that ginned the markets in 2020 and 2021. They also are expected to raise interest rates in March, with more increases to come.
Recent market volatility “is all sort of a drumroll to the Fed meeting,” says Ives, the Wedbush analyst. “Despite investors knowing there were going to be risks in a rising rate environment, it’s been a shock to the market.”
Several leading investment banks believe the market volatility is unlikely to push the Fed off its game plan. Goldman Sachs and Bank of America have both signaled in recent days that they expect a more hawkish central bank, which could tighten monetary policy even further, according to CNBC.
The Fed should provide more clarity with the release of its policy statement Wednesday, which comes as the latest wave of covid-19 infections weighs on the economy. In the meantime, the market is going to be on edge to a certain extent, says Wicker of MissionSquare Retirement.
In some ways, the market is becoming a victim of its own success, said Michael Farr of the D.C.-based investment firm Farr, Miller and Washington.
“All is not lost. … We’re doing this because the economy is too hot. We’re no longer trying to avoid recession and collapse, we’re trying to lower the heat,” Farr said. “That’s a great problem to have, but it does mean there was maybe an excess of success, and now we’re trying to correct that.”
Traders also are digesting corporate results: General Electric shares plunged 6 percent after recording a fourth-quarter loss of $3.8 billion, largely on the costs of supply chain crisis. Stock prices for 3M and Verizon rose and fell, respectively, despite better-than-expected earnings.
Lauren Goodwin, senior director at New York Life Investments, said that earnings are likely being seen as lackluster compared with the eye-popping performances of 2021 (which were boosted by comparisons to a weak 2020).
“It would be hard to match [2021’s] earnings growth as economic activity begins to moderate,” Goodwin noted in commentary Tuesday. “But we still see ample opportunity for capturing value via leadership rotation.”
Oil markets continued to buck the negative trends of the year as Russia’s encroachment on Ukraine and growing tensions in the Middle East applied pressure to prices. West Texas Intermediate crude, the U.S. oil benchmark, rose 2.2 percent to trade around $85.17. Brent crude, the international oil benchmark, gained 0.78 percent to trade around $87.85.
Though many traders are concerned about how Russia-Ukraine developments may affect the global economy — especially in the midst of an energy crisis — geopolitical conflicts are generally treated as “nonevents” by stock markets, according to Ryan Detrick, chief market strategist at LPL Financial.
“At this time, with the U.S. economy strong, earnings healthy, and corporate America in great shape, the stock market should be able to withstand this potential event,” Detrick said Tuesday in comments emailed to The Washington Post.