S&P 500 enters correction as global stocks fall

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Stocks across the world fell on Monday as expectations mounted that the US Federal Reserve will have to quickly undo stimulus measures that have propelled stock markets for the past two years.

The S&P 500 stock index fell 1.4% at midday in New York as a selloff extended into its fourth week. The blue-chip US benchmark is now more than 10% below an all-time high this month, known as the correction.

About 165 of the stocks in the index are now down more than 20% from recent highs, including top companies such as Moderna, Twitter, Netflix and Salesforce. The S&P 500 last week suffered its biggest loss since the pandemic rocked global financial markets in March 2020.

The air rushed into previously high-flying market segments this month. Bitcoin price briefly dipped 7% before bouncing back. Cathie Wood’s flagship fund Ark, which has large stakes in electric car maker Tesla and cryptocurrency exchange Coinbase, fell 2.4% on Monday. The fund is down 56% from its all-time high.

“In this type of environment, you would expect the more speculative names to be the most affected, and that is what is happening,” said David Kelly, chief market strategist for JPMorgan Asset Management.

Kelly pointed to a hawkish pivot from the Fed, as well as concerns about the effect the Omicron variant of the coronavirus has had on economic activity and rising geopolitical tensions as Russia stations troops on the Ukrainian border.

“Everyone realized that this market had come a long way, given the continued uncertainty, and needed to undergo a correction,” he added.

Shares of major U.S. tech groups were among the hardest hit on Wall Street, dragging the tech-heavy Nasdaq Composite Index down 1.2%.

The fall took the Nasdaq down 16% from an all-time high reached in November, with declines approaching a so-called bear market – when losses exceed 20%. Already, 71% of the more than 3,600 stocks in the index are down that much or more.

Instead, investors sought the relative safety of US government debt. An auction of two-year U.S. Treasuries drew its strongest demand since April 2020, with the yield rating dropping 0.05 percentage points to 0.95%.

Investors are “grimmed” by the Fed’s policy shift at its rate-setting meeting this week as the central bank seeks to rein in soaring inflation, said Gargi Chaudhuri, chief strategy officer. iShares Americas investment in BlackRock. They also focus on how quickly the Fed will start shrinking the size of its balance sheet by nearly $9 billion, which has already trickled down to financial markets.

“The idea that we are going to have policy normalization at the same time as we have balance sheet runoff will obviously be bad for financial conditions, and therefore bad for equity markets,” she said.

Goldman Sachs said over the weekend that it expected the Fed to signal that it would begin raising interest rates in March from historic lows near zero. The bank also warned customers of a “risk that the Federal Open Market Committee may want to take tightening action at every meeting until [the inflation] the image is changing” and that it could raise fares more than four times this year.

Futures markets have predicted that the world’s most influential central bank will raise its benchmark interest rate to more than 1% by December.

While higher interest rates increase borrowing costs for all businesses, they also make projected corporate earnings worth less in investor valuation models, with an amplified effect for tech companies. and other growth companies whose peak profits aren’t expected for years. Tesla and chipmaker Nvidia each fell about 5% on Monday.

Tech shares had soared during the pandemic era due to a widely held view that social restrictions had accelerated the advancement of social trends such as online shopping, remote working and gaming. .

But speculative tech stocks had reached “valuations [that] don’t make sense in any investment environment,” Morgan Stanley strategist Michael Wilson said in a note to clients, and weren’t falling “just because the Fed is pivoting.”

In the United States, an index of unprofitable technology stocks compiled by Goldman has lost 23% of its value this year. The Tokyo Stock Exchange’s mother market for high-growth start-ups fell around 18%.

In Europe, the Stoxx Europe 600 regional equity index fell 3.8% to its lowest level since October. Its tech sub-index fell 5.8%, its biggest daily decline since October 2020 and bringing its loss so far in January to more than 13%.

South Korea’s tech-heavy Kospi index fell 1.5% and Hong Kong’s Hang Seng Tech index fell 2.8%.

The Vix, Wall Street’s so-called fear gauge that measures expected volatility on the blue-chip S&P 500 stock index, hit 38.94 points – its highest since January 2021, when the stock craze stocks even rocked Wall Street.

Additional reporting by Jennifer Creery in Hong Kong and Leo Lewis in Tokyo

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