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Growth stocks continue to stay under pressure as investors await the details of the two-day FOMC meeting. Banks and energy sectors pose recovery.
On Tuesday, January 25, the US stock market witnessed another day of volatility as investors remain on the edge ahead of the major Federal Reserve meeting on Wednesday. The Dow Jones closed in the red zone, however, it recovered strongly from the day’s lows.
Dow Jones in Red
The Dow Jones blue-chip index (INDEXDJX: .DJI) was down 0.2% or 66 points ending Tuesday’s trading session at 34,297.73 levels. The index witnessed another day of 1000-point volatility swinging from 816 points down to 216 points in the positive.
Similarly, the S&P 500 (INDEXSP: .INX) also registered a drop-down of 1.2% ending the session at 4,356.45 levels. The tech-heavy Nasdaq Composite (INDEXNASDAQ: .IXIC) also tanked 2.28% ending the trading session at 13,539 levels.
In a note to investors on Tuesday, Vital Knowledge’s Adam Crisafulli said:
“The roller-coaster trading atmosphere continues. The lows from yesterday though haven’t been breached.”
As the Treasury yields are rising, banks and the energy sectors are likely to benefit the most from it. These two sectors played a major role during the comeback on Tuesday. Yesterday, the 10-Year Treasury Yield resumed its uptick gaining around 1.78%. Citigroup and Bank of America extended gains by 2% each. APA Corp and Occidental Petroleum also surged by more than 8%.
American Express was leading the gains on both – Dow Jones and the S&P 500 with a sharp 9% surge.
Tech Sector Remains in Deep Waters
Tech stocks continue to remain under pressure as the market prepares for rising interest rates from the Fed. On Tuesday, Nvidia (NASDAQ: NVDA) extended its 2022 losses to more than 24%. Tech heavyweight Microsoft (NASDAQ: MSFT) also tanked 2.7% just ahead of its earnings report after the bell.
General Electric was one of the biggest decliners losing 6% intraday. The company managed to top the quarterly earnings expectations, however, fell short of the revenue estimates. The S&P 500 has already corrected 8% since the beginning of the year registering its worst month since March 2020.
However, some market analysts believe that we are not yet done with the market correction. Speaking to CNBC, Liz Young, head of investment strategy at SoFi said:
“I don’t think it’s done. This … is a digestion process of a new environment that we’re not conditioned for.”
Fed’s hint at tightening monetary policies has pushed the 10-year Treasury Yield to the north. As a result, investors have been moving money from high-growth stock to safer bets. Barclays’ Maneesh Deshpande said:
“Downside risks from monetary tightening are higher vs history. The pain has so far been localized to high valuation stocks, but signs of a broader risk-off are brewing”.
Investors shall be awaiting more updates from the Fed after the conclusion of the two-day FOMC meeting on Wednesday.