Stock selling set to continue as investors brace for Fed, Dow futures fall more than 300 points
Stock futures fell on Monday after the S&P 500’s worst week since March 2020, as investors awaited more corporate earnings results and a key policy decision from the Federal Reserve.
Dow Jones Industrial Average futures fell about 320 points, or 0.9%. S&P 500 futures fell 1.2% and Nasdaq 100 futures fell 1.5%. All three major indexes had been higher earlier in the session.
Monday morning’s action followed a brutal week on Wall Street in the face of mixed corporate earnings and concerns over rising interest rates. The S&P 500 lost 5.7% last week and closed below its 200-day moving average, a key technical level, for the first time since June 2020. The blue chip Dow fell 4.6 % for its worst week since October 2020.
The sell-off in the tech-heavy Nasdaq Composite was even more severe, as the benchmark fell 7.6% last week, posting its fourth straight weekly loss. The index now sits more than 14% below its record close in November, moving deeper into correction territory.
The fourth quarter earnings season was mixed. While more than 70% of S&P 500 companies reporting results beat Wall Street estimates, a few key companies let investors down last week, including Goldman Sachs and Netflix.
“What had initially been a decline driven by stimulus withdrawal morphed in the past week to include earnings jitters,” Adam Crisafulli, founder of Vital Knowledge, said in a note. “So investors now worry not only about the multiple placed on earnings, but also about the EPS (earnings per share) forecasts themselves.”
Investors are expecting a slew of high-stakes earnings reports from large-cap tech companies this week, including Microsoft, Tesla and Apple. Tesla fell 5.1% and Apple lost 1.7% in premarket ahead of quarterly reports.
Shares of Peloton fell about 3.4% in premarket trading after news that activist investor Blackwells is calling on the interactive fitness company to fire CEO John Foley and seek a buyer.
Another crucial market driver will be the Fed’s policy meeting, which ends on Wednesday. Investors are eager for signals as to 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, is responding to expectations that it will not act at this meeting, but will launch the first of multiple rate hikes starting in March. Moreover, the Fed should conclude its monthly asset purchase program this same month.
In his press conference after the meeting, Chairman Jerome Powell could also indicate when the Fed will begin to unwind its mammoth balance sheet.
Goldman Sachs said over the weekend it saw rising risks that the Fed could adopt even more than the four quarter-percentage-point hikes the market has priced in for this year, and could begin to sell off the nearly $9 trillion in assets it’s holding in July.
Bond yields surged in the new year in anticipation of Fed rate hikes, which partly triggered the sell-off in growth-oriented tech stocks. While the 10-year Treasury yield ended last week down around 1.76%, the benchmark rate jumped about a quarter of a percentage point in 2022.
“The big story so far in 2022 has been rapidly rising interest rates, prompting investors to reassess valuations in some of the most expensive segments of the market and shift to value stocks,” he said. said David Lefkowitz, head of Americas equities at UBS Global Wealth Management.
Meanwhile, investors are dumping riskier assets this year as they prepare for the Fed to tighten monetary policy. Bitcoin fell more than 8% over the weekend, wiping out nearly half of its value at its all-time high reached in November. The price fell another roughly 5% on Monday morning below $34,000.