S&P 500 hits correction territory as US stock selloff extends

The S&P 500 – a proxy for US retirement and college savings accounts – fell more than 10 percent below its January 3 record close.

Things just keep getting worse for United States stock markets.

Coming off the heels of its worst week since the opening days of the coronavirus pandemic in March 2020, the S&P 500 fell further at the open of trading in New York on Monday, as concerns over looming interest rate hikes by the US Federal Reserve feed a growing aversion to risk.

The S&P 500 – a proxy for the health of US retirement and college savings accounts – stumbled more than 41 points or 0.95 percent at the opening bell to 4,356.32 – and kept on falling. By mid-morning, the index had shed more than 2 percent, landing it 10 percent below its January 3 peak – official correction territory.

The Dow Jones Industrial Average fell more than 194 points or 0.57 percent to 34,070.61 at the open, while the tech-heavy Nasdaq Composite Index slid more than 287 points or 2.09 percent to 13,481.50

Traders are likely to remain nervous ahead of the Federal Reserve’s two-day policy meeting this week that kicks off on Tuesday.

In December, the Fed pivoted its policy priorities away from boosting the job market through low interest rates and towards reining in inflation, which is running near a 40-year high.

But higher interest rates – though inflation cooling – also tend to cool consumer spending, which drives some two-thirds of US economic growth.

Since the opening weeks of the pandemic, the Fed’s easy money policies have helped propel stock prices ever higher. But when the Fed signalled in December that it could raise interest rates at least three times this year and would accelerate the unwinding of other stimulus measures, it sent up a warning that the pandemic’s cheap money era is drawing to a close.

Many analysts see the Fed getting even more aggressive this year to rein in soaring prices that are being fuelled by supply chain snarls and shortages of raw materials and workers.

Economists at Goldman Sachs led by Jan Hatzius expect four interest rate hikes this year.

“Two recent developments have made us more concerned about the inflation outlook,” Goldman wrote in a note to clients on Saturday. “First, Omicron could prolong supply-demand imbalances and delay price normalization in the goods sector. Second, wage growth is still running at a 5-6% annualized pace months after enhanced unemployment benefits expired.”

Also feeding investor worries are disappointing earnings and outlooks from pandemic darlings such as Netflix.

This week, some of the heaviest hitters in US tech are scheduled to release results including Microsoft, Tesla and Apple. Tech stocks were among the biggest winners of the pandemic trade.