(Reuters) - The prospect of a Russian attack on Ukraine and worries about the Federal Reserve moving aggressively to tighten policy sent Wall Street into a tailspin on Monday, with the Nasdaq closing in on a line that would signal it has been in a bear market since peaking in November.
A morning skid in the small-cap Russell 2000 index put it down more than 20% from its record closing high on Nov 8, before it reversed to move higher. If ends down 20% on a close to close basis it would meet the official criteria for a bear market. The tech-heavy Nasdaq was down 15.6% from it's Nov 19 record close, but was briefly 18.5% below it.
The S&P 500 also moved off its lows but was still 9.9% below it's record close on Jan 3. If it closes 10% below it would mean it has been in a correction since that date.
* STOCKS: Dow down 1.81%, S&P 500 down 1.92%, Nasdaq down 1.73%, Russell 2000 up 0.36%
* BONDS: The yield on benchmark 10-year notes fell to 1.6746 [US/]
* FOREX: The dollar index rose 0.241% [FRX/]
* VIX : The VIX was up 16% and touched its highest level since Oct 2020
MEGAN HORNEMAN, DIRECTOR OF PORTFOLIO STRATEGY, VERDENCE CAPITAL ADVISORS, HUNT VALLEY, MD
Investors are accepting the harsh reality that the end of the ultra easy monetary policy is upon us. This week the Federal Reserve meets and while we expect no changes at this meeting, the market is pricing in a full quarter point increase in March.
Tech ( is ) taking the brunt of weakness: Excess liquidity and ultra easy monetary policy have fueled speculation, euphoria and excessive pricing in some investments. What we have seen is these are the areas of the market getting hampered the most in the recent volatility. Technology, which saw valuations reach dotcom like levels, is down 14% from its high with more than 70% of the stocks in the NASDAQ Index 20% or more below their 52-week high.
KEVIN MAHN, CHIEF INVESTMENT OFFICER, HENNION & WALSH ASSET MANAGEMENT, PARSIPPANY, NEW JERSEY
“Today’s slide is part of the continuation of the market reacting to the more hawkish pivot that the Fed took at the end of 2021. That hawkish pivot kind of met the excessive stock market valuations that we saw due in large part to that record three-year run of the S&P 500, which was the best three-year run for that stock index since 1999. So I think a large portion of this pullback is due to people taking profits, people having concern that the Fed may go too far and perhaps derail this economic recovery."
MARC CHANDLER, CHIEF MARKET STRATEGIST, BANNOCKBURN GLOBAL FOREX
“Given people have lost money, whether it's in crypto or the stock market, people want to find a culprit and I think that people are torn between two possible candidates: the Federal Reserve and Russia.
“I’m skeptical that all of this is Russia driven. But it doesn’t mean when the first shots are fired, there won’t be a dramatic market reaction.
“Gold has rallied but it’s coming off its highs after peaking last Thursday. Oil prices also are reversing. Oil is having what they call an outside down day. It traded on both sides of Friday’s range, and now is below Friday’s low.”
BURNS MCKINNEY, PORTFOLIO MANAGER, NFJ INVESTMENT GROUP, DALLAS
“It seems that we get this every time we go through a Fed tightening cycle, but this just seems more of the same as the stock market is starting to price in the Fed basically concluding its taper and beginning interest rate hikes.”
“You have seen more and more with inflation continuing to prove to be more resilient than had previously been anticipated. Last year, the key word was transitory, transitory, transitory ... Everything ends, but I think people weren’t really pricing in inflation being as sticky as it has.”
“Poll numbers have shown that Americans are more concerned about inflation than they are about jobs. You don’t see that very often. As such, the talk has gone from the market pricing in the Fed starting to maybe hike one or two times this year, to hiking three or four times this year, and now it’s looking like it is even pricing in an outside chance of five hikes this year, and there has been some discussion about whether you can have a double boost in March. Each of those steps along the way, the market has kind of pulled back a little bit to price that in.”
DAVID MADDEN, MARKET ANALYST, EQUITI CAPITAL, LONDON
"Traders continue to be in selling mode as fears mount surrounding the Russia-Ukraine situation. Also playing into the mix are the concerns the Federal Reserve will issue a hawkish update on Wednesday. The growing Russian military presence on the Ukrainian border is adding to the speculation there will be an invasion, and those fears have been fueled by the news that UK and US embassy staff in Ukraine have been instructed to leave the country. Dealers are worried about the prospect of a war in Eastern Europe as the human and economic cost would be huge."
"Its déjà vu in the US as worries about several interest rate hikes from the Fed this year is hammering stocks. The NASDAQ 100 is once again the underperformer of the bunch as its large exposure to the technology sector is acting like a millstone around its neck. The US central bank is due to make their latest interest rate decision on Wednesday, and even though rates are likely to be lifted, the language used will be in focus. Dealers will be trying to decipher the commentary to try and figure out how rate hikes can we expect in 2022."
PETER CARDILLO, CHIEF MARKET ECONOMIST, SPARTAN CAPITAL SECURITIES, NEW YORK
"In the past half hour, panic selling is moving into the marketplace based on a bad combination of factors. The two factors that are really weighing on investor sentiment are the geopolitical situation as winds of war surface and fears that the Fed up may be overly aggressive this week."
"Today's sharp drop is due to the geopolitical reasons because if you look at two markets that are going opposite of the other markets, you have the U.S. dollar which is moving higher and you have yields that are moving lower, so that means people are moving into safety trade."
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