Dow drops more than 400 points as bond yields soar and earnings season enters full swing

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The three major indices opened lower and extended their losses throughout the morning. in the early afternoon, daw (UNDUE) It reported its worst losses but remained down 1.2%, or about 430 pips. the widest Standard & Poor’s 500 (SPX) It fell 1.4%. the Nasdaq Composite (COMP) It traded down about 2%.

The market is closed on Monday for Martin Luther King Jr Day.

“The culprit this morning, as it seems every day, is interest rates, with the top 10 year yield being 1.8% and the two year yield coming back over 1%,” said Paul Hickey of Bespoke Investment Group. Email clients.

Yields for these two bonds have not been at similar levels since before the pandemic: For the 10 years, January 2020 was when it last yielded more than 1.8%, and the two years haven’t touched more than 1% since February 2020 according to Refinitiv.

“Wall Street has also been under pressure thanks to heightened Fed concerns, jumps in rates and concerns about slowing growth,” Action Economics analysts said in their morning note.

The Federal Reserve is backing off its pandemic stimulus program and expects to raise interest rates several times this year to rein in rampant inflation.

Wall Street expects the first rate hike to occur at the central bank’s March meeting, according to the CME FedWatch tool. That could represent exactly two years since the Federal Reserve cut interest rates to nearly zero to support the economy during the pandemic.

Then there is earnings season.

“As earnings reports revealed last week, the bottom line and guidance were negatively impacted by higher expenses,” Action Economics analysts said. Inflation fears are everywhere.

As earnings season kicks off, investors are disappointed c. B. Morgan Chase (JPM) Results on Friday and Goldman Sachs (p) Tuesday morning results.

Shares of both banks traded lower on Tuesday, with JP Morgan down more than 4% and Goldman Sachs down nearly 7%.

On top of all that, economic data this morning disappointed expectations as the New York Fed Manufacturing Index fell 33 points to -0.7. This sudden shift came after eighteen months of growth.

“Manufacturing activity changed little in New York state according to the January survey, indicating that growth has stalled after a period of significant expansion,” the New York Fed said.

But is there reason to be concerned about the state of the stock market?

“The stock market weakness we have seen so far in 2022 is not unusual,” said Sam Stovall, senior investment analyst at CFRA Research.

In fact, history shows that stocks tend to sell and correct after a 20+% increase in the previous calendar year, Stovall said. And if the sale doesn’t happen right away, it will happen later in the year.

He added, “The implication for 2022 is that the current downturn should go down further.”

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