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Dow slides as volatility continues

All three major indexes traded sharply lower. Volatility is rife in the market: The Dow (INDU) fell as much as 750 points before recouping some of its lost ground. At midday, the index was trading 1.4%, or some 470 points, lower.
The S&P 500 (SPX), meanwhile, is once again in danger of closing in correction territory, down 2.2% at noon. A correction is defined as a 10% drop from the most recent peak. In the case of the S&P, that was just three weeks ago, when it hit its record high on January 3.
The Nasdaq Composite (COMP), which fell into correction territory last week, fell 3%.
The market’s volatility tracker, the CBOE Volatility Index (VIX), or Vix, jumped some 11%. And CNN Business’ Fear and Greed Index fell solidly into “Fear” mode Tuesday, as investors grew worried about the Fed’s policy changes and global politics.

Stocks climbed almost unabated in 2021, and some experts believe the market was due for a pull-back as stocks got expensive. On Monday, the Dow fell more than 1,000 points at its lowest point.

“Recent price action suggests the long overdue equity market correction has finally begun. In our view, this is a healthy long-term development,” said Steven Ricchiuto, US chief economist at Mizuho Securities.

For value hunters, the recent selloffs might present an opportunity “to begin nibbling at some of the more beaten down areas of the market,” he added.

What’s driving markets

Investors have a lot on their plate right now.

The Federal Reserve’s meeting is kicking off ahead of Wednesday’s policy decision. Although Fed Chairman Jerome Powell hasn’t made a secret of the central bank’s plans to roll back stimulus and raise interest rates this year, it’s stressing investors out.

The central bank in December signaled multiple rate hikes in 2022 and expectations settled on three one-quarter percentage point increases. But since then, the market has shifted its expectations to as many as four hikes.
Treasury bond yields, which track interest rate expectations, ticked higher on Tuesday, with the 10-year bond yielding 1.76% at midday. Last week, the yield had climbed above 1.8% for the first time since the pandemic started, signaling that the market is gearing up for a rising interest rate world.

The Fed’s expected actions come in response to rampant pandemic-era inflation. Economists and investors worry when will prices have soared so much that Americans stop spending — a terrible sign for the recovery.

Consumer confidence fell slightly in January, data from The Conference Board showed Tuesday, but it was still better than economists had expected. American’s view of the present situation improved even though short-term growth expectations declined.

“Concerns about inflation declined for the second straight month, but remain elevated after hitting a 13-year high in November 2021,” said Lynn Franco, senior director of economic indicators at The Conference Board. “Concerns about the pandemic increased slightly, amid the ongoing Omicron surge.”

With earnings season in full swing, investors want to hear how much of the production price increases companies can pass onto their consumers.

The cherry on top of the worries is the situation between Russia and Ukraine. Tensions are mounting while investors are trying to figure out how to price in a potential invasion of Ukraine.

Read More: Dow slides as volatility continues

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