U.S. stocks staged another resurgence Tuesday but closed lower despite a momentous clawback from losses in midday trading as investors anticipate clues from the Federal Reserve's policy-setting meeting on how quickly the central bank may move to tighten monetary conditions.
The Dow Jones Industrial Average saw another massive rebound, recovering a drop of more than 800 points to end just 0.19% below its flatline at 34,297.67. The S&P 500 ticked up from session lows but also closed in negative territory, down 1.22%, while the Nasdaq remained deep in the red, rounding the day out 2.28% lower.
"The market is exhibiting withdrawal symptoms as it is dealing with the possibility of the removal of the Fed put," Anu Gaggar, global investment strategist for Commonwealth Financial Network said in a note. "It almost feels like the market is behaving a little incoherently, not knowing which way to go – go down because the Fed is tightening or go up because the Fed is finally acting to rein in inflation and is loading up on ammunitions while economic growth remains strong."
The downward momentum in equities has been fueled by escalating central bank worries as the Federal Reserve looks to intervene on rising inflation levels more aggressively than previously anticipated with tighter policy and rate hikes. Investors are bracing for a new monetary statement and press conference with Fed Chair Jerome Powell on Wednesday following the FOMC's January monetary policy meeting. Although the policymakers signaled they would raise interest rates multiple times this year, an increase is not expected this week.
"The Fed tightening monetary policy is not a great backdrop for equities," Brian Levitt, Invesco global market strategist for North America, told Yahoo Finance. “It doesn’t mean we run for the woods. It doesn’t mean that the business or market cycles are over. It’s just investors should expect some volatility.”
MJP Wealth Advisors President Brian Vendig told Yahoo Finance Live the Federal Reserve is in a "tight spot."
"They know history has shown that if they move too quickly on interest rates, it adds to the risk of moving the economy into a slowdown and the risk of a recession.”
The CBOE volatility index, or VIX, closed Tuesday at about TK after crossing above 37 on Monday, its highest level since November 2020. In their newsletter, Nicholas Colas and Jessica Rabe of DataTrek Research sounded the alarm on recent jumps by the so-called “fear gauge.” The VIX closed last week’s trading at 29 to pass the initial 28 level DataTrek deemed significant, or “the first statistically valid level of market panic.” On Tuesday, the VIX hovered near 36, the next level the firm said to watch for.
“If you are trading this market, we continue to advise caution,” the DataTrek founders said. “Clarity on Fed policy will not come until Wednesday’s FOMC meeting, and even then, commentary from the Fed and Chair Powell may be insufficient to calm investors.”
With corporate earnings underway, stock watchers looking to fourth-quarter reports for relief from inflation jitters have found little reason for optimism so far. Goldman Sachs chief U.S. equity strategist David Kostin pointed out that of 64 S&P 500 companies that have reported results since the season began, a slightly below average 52% have beaten analyst consensus earnings estimates.
More concerning, according to Goldman, is a lack of guidance from companies amid unpredictable inflation and COVID-related conditions.
“Investors are most interested in forward-looking guidance from management, and recent information on that front has been concerning,” Kostin said. “Five of the six S&P 500 firms that provided formal 1Q 2022 guidance following 4Q results lowered expectations.”
LPL Financial equity strategist Jeff Buchbinder had a more upbeat take: pointing out that despite supply chain disruptions, wage and other cost pressures, and the Omicron COVID-19 variant, with the S&P 500 constituents that reported so far, index earnings are still tracking to 5% upside, in line with the long-term historical average.
“The volatility we’ve seen this year is uncomfortable, but it is well within the range of normal based on history,” Buchbinder wrote in a note.
“The S&P 500 has averaged three pullbacks of 5% or more per year and one correction of at least 10% per year over its long history,” he said. "After just one 5% dip last year, and huge gains off the 2020 lows, we were due for a dip."
4:15 p.m. ET: Microsoft beats estimates on earnings and revenue
Microsoft (MSFT) reported fiscal Q2 earnings after the closing bell on Tuesday that surpassed expectations on the top and bottom lines.
Revenue came in at $51.7 billion, compared to the $50.9 billion forecasted in Bloomberg consensus estimates, with its cloud services revenue jumping 46%. The software giant also reported earnings per share of $2.48 versus $2.31 expected.
Shares of Microsoft were down 3.15% in post-market trading to $279.40 a piece as of 4:13 p.m. ET.
4:00 p.m. ET: Stocks close in the red despite stunning reversal from session lows
Here were the main moves in markets at close following another turbulent day:
S&P 500 (^GSPC): -53.68 (-1.22%) to 4,356.45
Dow (^DJI): -67.76 (-0.20%) to 34,296.74
Nasdaq (^IXIC): -315.83 (-2.28%) to 13,539.29
Crude (CL=F): +$2.03 (+2.44%) to $85.34 a barrel
Gold (GC=F): +$6.30 (+0.34%) to $1,848.00 per ounce
10-year Treasury (^TNX): +4.8 bps to yield 1.7830%
2:22 p.m. ET: Markets claw back from losses heading into close
Here's how U.S. stocks fared during afternoon trading in another whipsaw session:
S&P 500 (^GSPC): -18.96 (-0.43%) to 4,391.17
Dow (^DJI): +66.26 (+0.19%) to 34,430.76
Nasdaq (^IXIC): -148.88 (-1.07%) to 13,706.25
Crude (CL=F): +$1.84 (+2.21%) to $85.15 a barrel
Gold (GC=F): +$11.30 (+0.61%) to $1,853.00 per ounce
10-year Treasury (^TNX): +4.1 bps to yield 1.7760%
1:25 p.m. ET: Coinbase shares plunge to record low
Shares of U.S. crypto exchange platform Coinbase (COIN) fell to their lowest price ever, deepening losses as the rout in tech stocks intensifies.
The drop comes following a warning from Mizuho Bank of a potential sales miss by the company in first quarter.
Coinbase (COIN) was down 3.68% to trade at $184.43 per share as of 1:25 p.m. ET.
12:04 p.m. ET: Stocks continue to falter as Federal Reserve meeting gets underway
Here were the main moves in markets in midday trading as of 12:04 p.m. ET:
S&P 500 (^GSPC): -95.04 (-2.16%) to 4,315.09
Dow (^DJI): -456.95 (-1.33%) to 33,907.55
Nasdaq (^IXIC): -406.32 (-2.93%) to 13,448.81
Crude (CL=F): +$1.77 (+2.12%) to $85.08 a barrel
Gold (GC=F): +$7.10 (+0.39%) to $1,848.80 per ounce
10-year Treasury (^TNX): +2.7 bps to yield 1.7620%
10:43 a.m. ET: Consumer confidence slips, while spending conditions hold strength
U.S. consumer confidence dipped slightly in January, but more consumers reported plans to purchase homes, automobiles and other big-ticket items despite waining optimism around macroeconomic conditions in the near term.
The Conference Board reported its consumer confidence index ebbed to a reading of 113.8 this month from a slightly downwardly revised 115.2 in December. Economists forecasted the index declining to 111.1 from the previously reported reading of 115.8 in December, according to Bloomberg consensus estimates.
"The Present Situation Index improved, suggesting the economy entered the new year on solid footing," the Conference Board's senior director of economic indicators Lynn Franco said. "However, expectations about short-term growth prospects weakened, pointing to a likely moderation in growth during the first quarter of 2022."
9:55 a.m. ET: IMF cuts world growth forecast, citing Omicron's impact
The International Monetary Fund lowered its economic forecasts for the United States, China and the global economy on Tuesday, indicating uncertainty about the pandemic, inflation, supply disruptions and U.S. monetary tightening have placed a dent in the agency's outlook.
“Our expectation is that growth will slow — as it should — to prevent the economy from overheating any more, but it should be a fairly well-behaved transition down,” IMF Chief Economist Gita Gopinath told Yahoo Finance in an interview Tuesday.
In its updated World Economic Outlook report, the IMF now expects the global economy to grow by 4.4% in 2022, half a percentage point lower than its last round of forecasts in October.
9:34 a.m. ET: Futures muted after turbulent trading session
Here were the main moves in markets at the start of the trading session:
S&P 500 (^GSPC): -66.22 (-1.50%) to 4,343.91
Dow (^DJI): -364.86 (-1.06%) to 33,999.64
Nasdaq (^IXIC): -236.63 (-1.71%) to 13,618.50
Crude (CL=F): +$0.10 (+0.12%) to $83.41 a barrel
Gold (GC=F): -$1.00 (-0.05%) to $1,840.70 per ounce
10-year Treasury (^TNX): +1.4 bps to yield 1.7490%
9:07 a.m. ET: US home price growth slows for fourth straight month
Home price growth in the U.S. continued to moderate in the penultimate month of 2021.
Standard & Poor’s reported that its S&P CoreLogic Case-Shiller national home price index posted a 18.8% annual gain in November, down from 19% from October. The 20-City Composite posted a 18.3% annual gain, down from 18.5% a month earlier. The 20-City results came in marginally higher than analysts’ expectations of an 18% annual gain, according to Bloomberg consensus estimates.
“Despite this deceleration, it’s important to remember that November’s 18.8% gain was the sixth-highest reading in the 34 years covered by our data (the top five were the months immediately preceding November)," said Craig J. Lazzara, managing director and global head of index investment strategy at S&P DJI, in a statement.
7:33 a.m. ET: Pfizer Inc and BioNTech commence research on Omicron-focused vax
Pfizer Inc (PFE) and BioNTech SE (BNTX) have began a clinical trial to test a new version of their COVID-19 vaccine specifically geared to target the Omicron variant, which has been reported to evade some of the protection provided by the original two-dose vaccine regimen.
Shares of Pfizer were down 2.37% in early trading at $51.54 a piece, while BioNTech was up 2.36% to $150.98 per share.
The companies are expected to test the immune response offered by the new Omicron-based vaccine both as a three-shot regimen in unvaccinated people and as a booster shot for people who have already previously received two doses of the original vaccine.
7:00 a.m. ET: Stock futures drop ahead of FOMC meeting
Here's how futures tied to the S&P 500, Dow, and Nasdaq fared in early trading:
S&P 500 futures (ES=F): -56.25 points (-1.28%), to 4,347.50
Dow futures (YM=F): -249.00 points (-0.73%), to 34,004.00
Nasdaq futures (NQ=F): -246.00 points (-1.82%) to 14,237.00
Crude (CL=F): +$0.21 (+0.25%) to $83.52 a barrel
Gold (GC=F): -$3.90 (-0.21%) to $1,837.80 per ounce
10-year Treasury (^TNX): 0.00 bps to yield 1.735%
6:00 p.m. ET Monday: Futures muted after turbulent trading session
Here's how contracts on Wall Street's main indexes fared heading into the overnight session:
S&P 500 futures (ES=F): -2.50 points (-0.06%), to 4,401.25
Dow futures (YM=F): +17.00 points (+0.05%), to 34,270.00
Nasdaq futures (NQ=F): -17.25 points (-0.12%) to 14,483.75
Crude (CL=F): +$0.76 (+0.91%) to $84.07 a barrel
Gold (GC=F): +$1.80 (+0.10%) to $1,843.50 per ounce
10-year Treasury (^TNX): -0.7 bps to yield 1.750%
Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc