U.S. stock index futures fell sharply in early trading Tuesday, after a wild session that saw the Dow erase a more than 1,100-point decline to finish the day in positive territory.
Futures contracts tied to the Dow Jones Industrial Average lost 230 points, or 0.7%, having earlier fallen by as much as 380 points. S&P 500 futures dropped 1.3%, while Nasdaq 100 futures fell 1.9%.
The 10-year Treasury yield, which has climbed this year as the Federal Reserve tightens its monetary policy, rose Tuesday morning. The higher rates pressured growth-oriented parts of the market with technology shares lower in early morning trading.
During regular trading Monday, the Dow gained 99 points, or 0.3%, and snapped a six-day losing streak. At the lows of the day, the 30-stock benchmark shed 3.25%. The S&P 500 advanced 0.28% for its first positive session in five, after losing nearly 4% earlier in the day. At one point the benchmark index fell into correction territory, dropping 10% from its Jan. 3 record close.
The Nasdaq Composite rose 0.6%, reversing a 4.9% decline from earlier in the day. The comeback was the first time the tech-heavy index clawed back a 4% loss to end higher since 2008.
“The buyers are coming in to buy the dip here,” Lindsey Bell, Ally’s chief money and markets strategist, said Monday on CNBC’s “Closing Bell.” “Things looked a little bit over-stretched to the oversold side, so it’s not surprising. But that doesn’t mean we are going to be in the clear … there’s a lot that we have going on this week,” she said
Ultimately, Bell said volatility is here to stay until the Fed begins hiking rates.
Despite Monday’s comeback, the S&P 500 is still down 7.5% in January, its worst month since March 2020 at the onset of the pandemic.
Markets have been rattled by a combination of factors, primarily a Federal Reserve expected to start raising interest soon to combat inflation, and geopolitical tensions between Russia and Ukraine. The economic impact of omicron also has been a concern, though signs that the Covid variant spread is diminishing have lessened those fears.
The Fed’s signal that it would began raising rates as soon as this March is the main culprit behind the market’s volatile start to the year.
The Federal Reserve Open Market Committee will begin its two-day meeting on Tuesday, with an interest rate decision slated for Wednesday at 2 p.m. ET. The Fed is not expected to begin hiking rates just yet, but is likely to maintain a path to tighter policy this year as it fights the highest inflation in decades.
“We’re in what I call the triple threat of … rapidly rising rates, and the market has been working overtime, as have all of the algorithms, to try to figure out what that means, and what that pace means for valuations and global equities,” UBS Private Wealth Management’s Alli McCartney told CNBC Monday.
Monday’s reversal was “capitulation,” she said, before adding that while volatility is here to stay, the market narrative is beginning to shift towards one of strong earnings growth supporting stocks.
Monday’s volatility follows the S&P 500’s worst week since the pandemic took hold in March 2020. Spooked by rising rates, investors have rotated out of high-growth areas of the market in favor of safer bets. The yield on the benchmark 10-year Treasury note stood at 1.769% on Monday.
The tech-heavy Nasdaq Composite has been hit especially hard and fell into correction territory last week. The index is down 11.4% so far this year, underperforming the S&P and Dow, which have declined 7.5% and 5.4%, respectively.
“Considering expectations for solid gains in the economy and corporate profits…we’re not convinced the fundamentals support any near-term technical weakness beyond the classic 10.0% correction,” said John Lynch, chief investment officer for Comerica Wealth Management. “Yet a review of the technical and fundamental backdrops suggests a bottom is forming,” he added.
Investors digested a slew of quarterly earnings reports before the open.
General Electric fell about 2% and Johnson & Johnson lost 1.8% in the premarket after both companies beat earnings expectations, but missed revenue estimates.
3M rose 1.9% and American Express gained 3.4% after