Stocks finished the day slightly higher on Monday, recovering from a sharp plunge sparked by uncertainty over Fed anti-inflationary steps and the prospect of war between Russia and Ukraine.
A late-day buying spree pushed the benchmark S&P 500 index to a 0.3% gain after pulling it out of so-called correction territory — a drop of 10% or more from its recent high.
The S&P 500 index advanced by 0.3 percent in the late hours of trading, after having been pulled out of "correction" territory — a fall of 10% or more from its peak.
“We’re in this wait-and-see mode, which is almost the most uncomfortable place to be, so I think the market is really grappling with that,” said chief markets and money strategist at Ally Invest, Lindsey Bell.
The S&P 500 ended its three-week slide on Monday with its worst weekly slump since the pandemic began.
The S&P 500 had dropped as much as 4% on Monday. The index has recouped losses of that magnitude just three times previously. After plummeting nearly 5%, the Nasdaq composite index rose 0.6%.
The benchmark stock indexes initially approached 4-month lows early in the day as investors awaited word from the Fed on its intentions to raise interest rates to control inflation, which is at its highest point in nearly four decades.
Since the pandemic hit the global economy in 2020, the Federal Reserve's short-term rate has been kept at or near zero, fueling borrowing and spending by consumers and enterprises.
Increasing costs at supermarkets, car lots, and gas stations are raising concerns that consumers will restrict their spending to avoid pushing their expenses higher. Suppliers have stated that bottlenecks in the supply chain and rising raw material expenditures might reduce earnings.
The Federal Reserve has kept long-term interest rates lower by buying trillions of dollars' worth of government and corporate bonds, but those emergency purchases will conclude in March. It is the intention of pushing interest rates higher to aid slow economic development and inflation.
“There’s a short-term panic and part of that is the high level of uncertainty around what the Fed is going to do," said chief investment officer at Defiance ETFs, Sylvia Jablonski.
Investors are also keeping an eye on events in Ukraine. Tensions increased dramatically between Russia and the West over fears that Moscow is planning to invade Ukraine on Monday, with NATO revealing plans for troop and ship movements.
The S&P 500 gained 12.19 points to 4,410.13. It's now 8.1% below the all-time high it set on January 3th. The Dow rose by about 100 points to close at 34,364.50. The Nasdaq increased by 86.21 points to 13,855.13. Starts were excellent. Small-cap equities rose as well, with the Russell 2000 increasing by 45.59 points, or 2.3 percent, to 2,033.51. The index had fallen 2.8%.
Yields on bonds mostly rose after dipping earlier in the day. The yield on the 10-year Treasury climbed to 1.77 percent from 1.74 percent late Friday afternoon.
High interest rates make stocks in high-performing technology firms and other fast-growing businesses look less appealing. Technology stocks, which account for a significant amount of the S&P 500's early drop, were one of the main causes. The sector as a whole finished up higher, although a few key names didn't fully recoup. Apple (NASDAQ: AAPL) dropped 0.5 percent.
The cryptocurrency market took a knock, too. Bitcoin fell to $33,000 overnight and then rebounded above $36,000 by late afternoon. Nonetheless, the cryptocurrency is still far below its all-time high of more than $68,000 set in November.
The stock market's resurgence has benefited some of the biggest names in retail. When it comes to gains, Gap (NYSE: GPS) is one of them: It rose by around 8%.
The market is waiting to hear from Federal Reserve chair Jerome Powell this Wednesday, following a two-day meeting in which Fed officials will give their latest ideas on the economy and interest rates. Some economists have expressed concerns that the Fed is already moving too slowly to combat high inflation.
Several experts fear that the Federal Reserve may overreact. They believe that many rate increases would risk triggering a recession and would, at best, have no impact on inflation. In this viewpoint, high prices are largely due to knotted supply chains that the Fed's interest rates cannot change.
When the Federal Reserve raises short-term rates, it has an adverse impact on both individuals and businesses because it makes borrowing more costly, slowing the economy in order to reduce inflation. This might result in lower company profits over time, which has a greater influence on stock prices over the long run.
The Fed's short-term interest rate target has been in a range of 0% to 0.25 percent for most of the year. According to CME Group's Fed Watch tool, investors now see a nearly 65% chance that the rate will be raised four times by the end of 2022, up from 35% a month ago.
In March, the Federal Reserve is widely expected to raise rates for the first time. In a note to clients over the weekend, Goldman Sachs predicted four rate hikes this year but said that if supply chain issues and wage growth continue to remain high, the Fed may be compelled to raise interest rates five times or more.
Concerns about the Fed's tightening and concerns over Ukraine sent Europe's STOXX 600 index down by 3.6 percent on Tuesday morning. After U.S. President Joe Biden said that if Russia invades the United States, the country could prevent Russian banks from accessing dollars or impose additional sanctions, the Russian ruble has suffered losses as well
Investors are keeping an eye on the most recent round of corporate earnings to see how firms are coping with higher costs and what they intend to do as inflation pressurees operations.
On Tuesday, American Express (NYSE: AXP), Johnson & Johnson (NYSE: JNJ), and Microsoft (NASDAQ: MSFT)release their earnings. Boeing (NYSE: BA) and Tesla (NASDAQ: TSLA) disclose their results on Wednesday. On Thursday, McDonald's (NYSE: MCD), Southwest Airlines (NYSE: LUV), and Apple (NASDAQ: AAPL) release theirs.