The S&P 500 swung back toward positive territory near the end of the trading session on Monday after a brief but precipitous dive into correction territory.
The Dow Jones Industrial Average ended the day in the green — up 99.13 points, or about 0.3% — at 34,364.50. That's the first gain for the index in a week. The Nasdaq Composite added 0.6%, closing Monday's session at 13,855.13. And the S&P 500 climbed 0.3%, resting at 4,410.13 for the day.
Earlier in the day, stocks had tumbled into correction territory. The plunge came as rattled investors stood by for more corporate earnings results and a key policy decision from the Federal Reserve.
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 pullback of the S&P 500 earlier in the day put the index down more than 11 percent this month, and was on pace for its worst monthly decline since March 2020 and worst January performance ever. The Dow was also headed for its biggest one-month loss since March 2020, falling more than 7 percent.
The CBOE Volatility Index (VIX), known on Wall Street as the market's "fear gauge," hit its highest level since November 2020, reaching 38.47.
The steep declines have also rattled retail investors who piled into the markets in the early days of the pandemic and enjoyed record highs through much of 2021.
The fourth-quarter earnings season has been a mixed bag. While three-quarters of S&P 500 companies that have reported results have topped Wall Street estimates, a couple of key firms let down investors last week, including Goldman Sachs and Netflix.
“What had initially been a stimulus withdrawal-driven decline morphed last week to include earnings jitters,” Adam Crisafulli, founder of Vital Knowledge, said in a note. “So investors are now worried not just about the multiple placed on earnings, but the EPS (earnings-per-share) forecasts themselves.”
Investors are also anticipating a slew of high-stakes earnings reports from mega-cap tech companies this week.
Riskier assets are selling off this year as investors brace for the Fed to tighten monetary policy. Bitcoin dropped more than 8 percent over the weekend, wiping out nearly half of its value at its record high reached in November. The price fell another roughly 4 percent Monday morning below $34,000, but later clawed back to close at $37,055.
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 Federal Open Market Committee, which sets interest rates, meets with expectations that it won’t act at this 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, Federal Reserve Chairman Jerome Powell also could signal when the central bank will start to unwind its mammoth balance sheet.
Goldman Sachs said at 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.
Bond yields have surged in the new year in anticipation of Fed rate hikes, which partly triggered the drastic sell-off in growth-oriented tech shares. While the 10-year Treasury yield finished last week lower around 1.76 percent, the benchmark rate has jumped about a quarter of a percentage point in 2022.
“The big story so far in 2022 has been the rapid move higher in interest rates, which is prompting investors to re-assess valuations for some of the most expensive segments of the market and rotate into value stocks,” said David Lefkowitz, head of equities Americas at UBS Global Wealth Management.