Stocks plummeted on Monday. Indeed, Omicron, a Covid-19 derivative, is starting new lockdowns in Europe, which is cause for alarm. But, more critically, the stock market continues to reflect the Federal Reserve’s rapid withdrawal of financial help. The Industrial Average of Dow Jones dropped 433 points or 1.2 percent on Wednesday. The S&P 500 fell 1.1 percent, while the Nasdaq Composite, heavily weighted in technology, fell 1.2 percent.
“The subdued trade concluded last week with the Fed’s comments and growing expectations of more and quicker rate hikes,” said Kevin Simpson, founder, and chief investment officer of Capital Wealth Planning. Changes in Fed policy pose a danger to the economy and stock prices, reflected in the stock market. The Federal Reserve plans to stop purchasing hundreds of billions of dollars in bonds in March, a month earlier than expected. In 2022, the Interest rates are likely to be raised three times.
The S&P 500 is presently down nearly 3% from its all-time high, set on December 10. The Energy Select Sector SPDR Fund (XLE), SPDR S&P Bank Exchange-Traded Fund (KBE), and SPDR S&P Metals & Mining ETF (XME), all of which are very economically sensitive, are currently in the correction zone. The correction zone is defined as a decline of at least 10% from a recent high. All three funds had a dip on Monday.
The value of WTI crude oil has dropped more than 3% to below $69 per barrel. The IT sector is also under a lot of strain. The NASDAQ has fallen nearly 7% since hitting an all-time high. Shareholders are less ready to make risky bets on companies developing today to earn significant profits several years because there is less extra money pouring via capital markets. So it’s no surprise that technology stocks are still in the red. The Nasdaq’s average forward price/earnings multiple remains 31 times greater than it was shortly well before the pandemic in early 2020 when economic circumstances made it harder for investors to place such a high value on fast-growing businesses.
On the economy at large, “the put-off has been going on for a while now.” All of this does not indicate that the market’s misery is ended in the short term, but it does suggest that much of it is in the rearview mirror. Reinking adds that there have been some signs saying that stuff is beginning to get somewhat out of our hand in near time. Omicron didn’t help markets feel any better, adding to their anxiety. On Sunday, the Netherlands ordered fresh lockdowns, while Germany would impose a travel ban on those entering the country from the United Kingdom. New curfews were also enforced in Ireland.
“A flurry of bad headlines has dampened optimism at the start of the week as equities markets fall,” stated Craig Erlam, senior market analyst at Oanda. Joe Manchin, Senator, West Virginia said he would oppose President Joe Biden’s $2 trillion tax-and-spending bills. On Sunday, the West Virginia Democrat stunned the White House by telling Fox News that that it was a “no” for him and that he couldn’t “vote to keep this piece of legislation alive.” The package, which Senate Democrats hoped to pass before Christmas, came to a standstill the previous week after protracted conversations between Manchin and Biden.