Stocks fall sharply as a bout of market volatility continues

In this photo provided by the New York Stock Exchange, trader Michael Conlon, right, works on the floor, Tuesday, Jan. 25, 2022. Stocks fell sharply on Wall Street Tuesday, continuing a volatile bout of trading that has sent markets swinging between sharp losses and gains as investors gauge several threats. (Allie Joseph/New York Stock Exchange via AP)

Stocks fell sharply on Wall Street Tuesday, continuing a volatile bout of trading that has sent markets swinging between steep losses and gains as investors gauge several threats.

Higher inflation has been squeezing businesses and consumers, and the Federal Reserve is expected to combat it in 2022 by raising interest rates. Investors fear that the Fed could either be moving too late or could be too aggressive. The central bank issues its latest policy statement Wednesday.

The virus pandemic still hovers over the economy and threatens to crimp progress with every new wave. And a potential conflict between Russia and Ukraine threatens to push energy prices even higher while forcing more countries to focus on fighting a war instead of inflation and COVID-19.

The S&P 500 fell 2.3% as of 12 p.m. Eastern. The benchmark index has been falling steadily ever since hitting a record high on the first trading day of the year, Jan. 3. It's now getting closer to entering a “correction,” which among markets watchers means a drop of 10% from a peak.

The Dow Jones Industrial Average fell 481 points, or 1.4%, to 33,886. The tech-heavy Nasdaq fell 3%. The index entered a correction last week and is now down more than 15% from its high set on Nov. 19.

Major indexes had a similar start to trading on Monday and were down most of the day, but a late buying spree pushed them to a higher close. That rebound may have been just a “head fake,” said Barry Bannister, chief equity strategist at Stifel. More declines are likely in store for the market, he said.

Even though the S&P 500 managed to eke out a gain after its roller-coaster ride on Monday, a measure of nervousness on Wall Street known as the VIX index remained high. That suggests stress is continuing to grow in the system, with markets in a “high speed spin cycle,” strategists at UBS wrote in a report.

Futures contracts related to the VIX, meanwhile, indicate investors are preparing for a high level of volatility in the near term but less in ensuing months. That’s a flip from their typical behavior last year.

Technology stocks again led the losses as investors worry about rising interest rates. Higher interest rates tend to make shares in high-flying tech companies and other expensive growth stocks less attractive. Microsoft fell 3.5%.

Retailers, banks and communications companies also fell. Home Depot fell 2% and Netflix fell 5.2%. U.S. crude oil prices rose 2% and helped send energy stocks higher. Occidental Petroleum rose 4%. Utilities and other sectors that are considered less risky held up better than most of the market.

Bond yields rose. The yield on the 10-year Treasury rose to 1.76% from 1.74% late Monday.

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Associated Press Business Writer Stan Choe contributed.