The Dow Jones Industrial Average sank more than 1,000 points by afternoon trade on Monday as geopolitical worry over Russia’s behavior toward Ukraine combined with concerns over the Federal Reserve’s plans to tighten monetary policy — darkening the mood and sending investors to the exits.
The S&P 500 index, the broadest measure of US stocks, officially entered “correction” territory, which is defined as a 10% drop from its most recent high, as it fell by more than 3.8% to 4,229.87. The tech-heavy Nasdaq index plummeted even further, logging a 4.6% decline.
The sharp downturn turn came after US stock indices last week turned in their worst week since March 2020.
Market volatility has increased in recent weeks as investors brace for the Fed’s expected withdrawal of pandemic-era economic support, which has provided the cheap money to fuel bets on ever-riskier assets.
The central bank is expected to provide a glimpse of its plan, including upcoming interest rate hikes, following a closely-watched policy meeting on Tuesday and Wednesday.
The Fed is widely expected to hike rates at least three or four times in 2022, with the first hike projected for March. Over the weekend, Goldman Sachs warned clients the Fed could enact more than four hikes to curtail red-hot inflation.
Investors are also reacting to mounting fears that Russia will launch a military invasion of Ukraine, despite numerous warnings and threats of crippling sanctions from the Biden administration. On Sunday, the State Department told the family members of embassy staffers to leave Ukraine due to the ongoing military buildup.
The CBOE Volatility index, tracked as a measure of investor anxiety, hit its highest level since at least January 2021, according to Reuters.
Leading cryptocurrencies also continued their tumble as investors shed riskier speculative assets. The decline of leading digital currencies has coincided with plunges for tech stocks in recent days.
Bitcoin dropped more than 5% to about $33,406. Ethereum dropped more than 10% to $2,188 and Solana dropped 15% to $83.27.
The latest market plunge occurred as several blue-chip firms prepare to report earnings later this week. Microsoft reports earnings after the bell on Tuesday, followed by Tesla on Wednesday and Apple on Thursday.
Microsoft shares dropped nearly 3% in early trading, while Tesla declined nearly 7% and Apple dropped about 2%. Meanwhile, Peloton shares ticked slightly higher after an activist investor group called on the embattled tech firm to fire its CEO and explore a sale.