U.S. stocks opened lower, putting markets on course for another day of bumpy trading, as investors awaited the Federal Reserve’s policy meeting and parsed a docket of earnings.
The S&P 500 fell 1.6% early Tuesday, while the technology-heavy Nasdaq Composite slumped 1.7%. The blue-chip Dow Jones Industrial Average dropped 1.1%.
The moves follow a jarring intraday reversal Monday, when major indexes clawed back losses to post a big comeback. The Dow reversed losses of more than 1000 points for the first time in history. After falling more than 4% in intraday trading, the Nasdaq recorded its biggest reversal since 2008.
Concerns about the Fed have driven investors out of stocks and stoked worries that the popular trade of buying small dips in the market was growing weaker, potentially removing one source of support for the stock market. Monday’s comeback showed that many investors were quick to pounce on beaten-down stocks, though much of that enthusiasm appeared to fade by early Tuesday.
“My fear is we are going to go lower,” said Zhiwei Ren, a portfolio manager at Penn Mutual Asset Management. It’s “going to be a big week.”
Behind the selloff: fears about the Federal Reserve raising interest rates this year and withdrawing the stimulus that propelled markets in recent years. Some investors said they no longer expect the so-called Fed put—or the Fed’s tendency to cut rates or hold off on rate increases in response to market turmoil—to stay in place. Others have been more optimistic.
“We expect the earnings season to reassure, and in a worst-case scenario could see a return of the ‘Fed put,” wrote JPMorgan strategists in a note to clients on Monday.
General Electric fell over 6% after reporting a fourth-quarter loss of $3.8 billion, while Raytheon Technologies declined 0.5% after posting quarterly revenue that missed analysts’ expectations. Meanwhile, 3M shares rose 0.2% after the company reported a better-than-expected performance.
Market volatility has spiked in recent sessions, as investors have grown anxious about how rapidly the Federal Reserve will act to combat inflation by raising interest rates and shrinking its balance sheet. Meanwhile, earnings have failed to deliver the bumper beats investors became accustomed to last year, while geopolitical tensions surrounding Ukraine and Russia have weighed on sentiment.
Around 77% of companies reporting so far have surpassed analysts’ expectations, according to Refinitiv. That hasn’t been enough to lift stocks. The median company beating earnings expectations this quarter has slipped around half a percentage point, while companies missing earnings expectations have fallen around 4%, wrote Morgan Stanley analysts in a note to clients Monday.
This week, investors will be parsing results from tech heavyweights like Microsoft, Apple and Tesla. These been among the companies weighing on the S&P 500 the most this year, according to Goldman Sachs.
Individual investors appeared to be buying the dip in stocks like Tesla, Apple, Nvidia and Microsoft on Monday, according to Nicholas Colas, co-founder of DataTrek Research. That potentially helped the market record its historic comeback.
While earnings in 2021 were a source of strength for equity markets, recent results suggest companies are beginning to struggle with inflation and slowing economic growth, said David Donabedian, chief investment officer at CIBC Private Wealth.
“We have gotten so used to this cycle of companies blowing the roof off of earnings expectations, but so far that is not happening,” he said.
Meme stocks continued to suffer Tuesday. GameStop and AMC declined each declined over 2% after falling sharply on Monday.
Federal Reserve officials are set to debate the path of monetary policy, including the speed at which they could shrink the nearly $9 trillion bond portfolio, at their two-day meeting that starts Tuesday. Chairman Jerome Powell is expected to use his postmeeting comments to lay the groundwork for a cycle of interest-rate rises.
The yield on the benchmark 10-year U.S. Treasury note rose Tuesday to 1.755% in recent trading, from 1.735% Monday. Bond yields move inversely to prices.
Overseas, Japan’s Nikkei 225 closed down 1.7%, with major decliners including technology and telecom giant SoftBank Group, which fell more than 5%. Australia’s S&P/ASX 200 and South Korea’s Kospi Composite both retreated more than 2%. Hong Kong’s Hang Seng Index shed 1.7%.
European stocks rebounded, having closed Monday before U.S. indexes rallied. The pan-continental Stoxx Europe 600 index was up 0.8% Tuesday.
—Quentin Webb contributed to this article.
Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8