Why might US interest rates rise this year?
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(CNN Business) ––
Wall Street had another day in the red on Monday with the Dow plummeting, as investors worry that the Federal Reserve's plans to raise interest rates will hurt corporate profits.
Tensions in Ukraine, earnings season and of course inflation didn't help the picture either.
The Dow fell 1,000 points, or 3%, by midday.
The S&P 500, the broadest measure of the US stock market, was headed to end the day in correction territory: down 10% from its most recent high.
In fact, the S&P 500 was trading 3.7% lower at midday.
Last week, the index posted its worst week since March 2020.
The Nasdaq Composite, which was in correction territory last week, was the morning's biggest loser with a 4.5% drop.
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Every day last week, stocks underperformed in the last hour of trading, which tends to be a bad sign for the next day, said TD Ameritrade chief market strategist JJ Kinahan.
That negative sentiment continued on Monday.
There's a lot to digest
Investors also have a lot at stake this week.
Earnings season has passed for big tech companies, including Microsoft, IBM, Intel and Apple, which report results this week.
Then there is the Federal Reserve meeting, which will conclude with the policy statement this Wednesday and the subsequent press conference.
On Monday morning, market expectations for this week are that the central bank will keep interest rates close to zero for a bit longer, according to the CME FedWatch tool.
But for the next meeting, which will be in March, expectations for a quarter percentage point rate hike are above 80%.
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Now, expectations are only part of what is at stake.
The Fed could also conclude that inflation has gotten too high by the end of 2021 and raise rates further... or even sooner.
Treasury yields, which track interest rate expectations, came in below last week's highs on Monday.
The 10-year bond yielded 1.72% at noon after topping 1.8% last week for the first time since before the pandemic.
As the Federal Reserve tries to reduce inflation by normalizing its pandemic-era policies, the US economy is grappling with the fallout from the omicron variant.
U.S. private-sector production growth slowed in January as the highly infectious variant put more pressure on an already battered supply chain and existing labor shortages, according to the Composite Industry Managers Index. IHS Markit flash shopping.
To make matters worse, investors are eyeing the situation in Ukraine with anxiety, as fears mount that the country could be invaded by Russia.
The news that the United States and the United Kingdom are withdrawing some of the personnel from local embassies does not exactly create confidence that the situation will be resolved quickly.
In fact, European stock markets are also down considerably.
Commodity markets are coming under pressure from rising tensions and analysts believe oil prices could soar if the situation escalates.
On Monday, however, US oil prices fell 3.3%, or nearly $2.90 a barrel, to $82.31 by midday.
Julia Horowitz of CNN Business contributed to this report.
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