Traders on the floor of the New York Stock Exchange, January 26, 2022.
Stock futures fell in overnight trading on Monday after Wall Street ended a tumultuous month with heavy losses as investors grappled with the Federal Reserve’s policy change.
Dow Jones Industrial Average futures were down 70 points. S&P 500 and Nasdaq 100 futures traded 0.3% lower.
While stocks managed a tech-fueled rally on Monday, the major averages still suffered through a brutal month marked by wild price swings. The S&P 500 and the Nasdaq Composite posted their worst months since March 2020 at the height of the pandemic, down 5.3% and 8.9%, respectively. It was also the S&P 500’s biggest January drop since 2009. The blue-chip Dow fell 3.3% for the month.
The January selloff came as the central bank signaled its readiness to tighten monetary policy, including raising interest rates several times this year, to rein in inflation that has spiked to the highest level in nearly four decades. Investors abandoned growth-oriented technology stocks, which are particularly sensitive to rising rates.
Volatility exploded during the month as investors deciphered the Fed’s message on its policy pivot. At one point last week, the S&P 500 dipped into intraday correction territory, briefly falling 10% from its all-time high. The recent rally pushed the large-cap benchmark 6.3% below its peak. Meanwhile, the tech-heavy Nasdaq is still in a correction, down 12% from its all-time high.
Still, many Wall Street strategists remind investors that corrections are normal in bull markets. Since 1950, there have been 33 S&P 500 corrections of 10% or more since 1950, with the average episode lasting about five months, according to Goldman Sachs.
“The latest drop is a normal market correction that does not signal a recession or the end of this bull market,” said Chris Haverland, global equity strategist at Wells Fargo. “We continue to believe that economic growth and corporate earnings will be strong this year, and that the Fed will not be too aggressive in easing monetary policy.”
This week a number of key companies are expected to report earnings, which could set the tone for the month of February. Exxon Mobil is scheduled to release numbers before the bell on Tuesday, while Alphabet, General Motors, Starbucks, AMD and PayPal are due to release after the bell.
So far, of the 172 S&P 500 companies that have reported earnings to date, 78.5% beat analyst estimates, according to Refinitiv.
“We still anticipate solid, if more modest, gains for markets this year, along with more normal pullbacks, especially given the transition in monetary policy,” Keith Lerner, chief market strategist at Truist, said in a note.