Stock Market Has Worst Week Since Pandemic Hit

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22

That’s how many months it’s been—going back to the pandemic’s first onslaught—since the S&P 500 or Nasdaq Composite have had a week this bad.

The S&P 500 Index, one of the most popular benchmarks for stocks, slid 5.7% this week, while the tech-heavy Nasdaq Composite Index dropped 7.6%. The last time either had fallen as much in one week was March 2020, when initial news of COVID-19 crushed the market.

Investors are bracing for the Federal Reserve to combat today’s red-hot inflation by pulling back on, or tightening, the easy-money policies that have supported markets and the economy throughout the pandemic. At the close of regular trading Friday, the S&P was down 8.3% from a record high just reached on Jan. 3, while the Nasdaq had fallen 14% from its November peak, putting it firmly in correction territory.

"It's pretty crazy. It kind of feels like we're back in 2020 mode,” said Ed Moya, a senior market analyst at OANDA. “The market was basically just pricing in a gradual tightening, but inflation is stronger than we had anticipated. So the expectations have dramatically shifted in three weeks. The Fed will be a lot more aggressive in tightening.” 

"Profit forecasts for corporate America were too optimistic so people are taking off a lot of risk, and that's hit tech pretty hard,” he added. 

But will the recent sell-off deter the Fed from this tightening mode—including from its plans to raise benchmark interest rates as soon as March? Some say no.

“They will let the stock market go to get inflation down with multiple rate increases," said Tom Blew, a private investor.

Have a question, comment, or story to share? You can reach Diccon at dhyatt@thebalance.com.

Additional reporting by
Medora Lee
Medora Lee
Full Bio
Medora Lee began covering the financial markets in 1992 and has interviewed U.S. Treasury secretaries and CEOs of Fortune 500 companies. Her work at outlets including Reuters, theStreet.com, and Forbes.com schooled her in stocks, commodities, and bonds and now she translates Wall Street for Main Street at The Balance.
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Article Sources

  1. Yahoo Finance. “S&P 500 (^GSPC) Historical Data.”  Accessed Jan. 21, 2022.

  2. Yahoo Finance. “NASDAQ Composite (^IXIC) Historical Data.” Accessed Jan. 21, 2022.

  3. FRED Economic Data. “S&P 500.”  Accessed Jan. 21, 2022.

  4. FRED Economic Data. “Nasdaq Composite Index.”  Accessed Jan. 21, 2022.

  5. PBS. “Inflation Surged in December at the Fastest Pace in 40 Years,” Jan. 12, 2022. (Video.) Accessed Jan. 21, 2022.