S&P 500 Follows Nasdaq Into Correction Territory as Fear Index Rises

Dow falls 1,000 points as VIX spikes

U.S. equity markets' January dive steepened, with the Dow Jones Industrial Average (DJIA) sliding more than 1,000 points and the S&P 500 joining the Nasdaq in correction territory.

Key Takeaways

  • The S&P 500 Index fell into correction territory on concerns about tighter monetary policy and military conflict between Russia and Ukraine.
  • The Dow fell 1,000 points as the VIX, aka the Fear Index, spiked.
  • Bonds rose, while oil and cryptocurrency prices fell.

The Dow, which gained 19% last year, has dropped for the past three weeks and is on track for a seventh straight losing session. The VIX, the so-called "fear index," jumped 26% today.

The sell-off comes on concerns about more tightening by Federal Reserve policymakers meeting Tuesday as well as worries about possible military action in Ukraine. A report showing business growth slowing because of the omicron variant of COVID-19 is also affecting sentiment.

Almost all of the stocks in the Dow are falling. Shares of International Business Machines Corporation (IBM), Apple Inc. (AAPL), and Microsoft Corporation (MSFT) are sinking ahead of their financial reports coming in the next few days. Banking shares are lower, with The Goldman Sachs Group, Inc. (GS) and JPMorgan Chase & Co. (JPM) shares dropping more than 3%. Shares of The Walt Disney Company (DIS) are down for a fourth day in a row. Netflix, Inc. (NFLX) is again the worst-performing stock in the S&P 500.

However, shares of department store chain Kohl’s Corporation (KSS) are soaring on reports that the retailer has received multiple takeover offers.

The dollar is higher in anticipation of Fed rate hikes. That's sending oil futures declining 3% as oil is traded in U.S. dollars.

Losses keep mounting for major cryptocurrencies, with the price of Bitcoin (BTC) down 3% and Ether (ETH) trading 8% lower.

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Covid-19 Contraction: Chart of the Day

ihs markit

A measure of private business growth in the U.S. dropped to an 18-month low in January as the spread of the omicron variant of COVID-19 led to softer demand conditions, worsening supply chain disruptions, and labor shortages.

The IHS Markit flash Composite Purchasing Managers Index (PMI) came in at 50.8, down from 57 in December. The group's flash Services Business Activity Index fell to 50.9 from 57.6, also an 18-month low and below economists' forecasts. The flash Manufacturing PMI dipped to 55 from 57.7, the lowest in 15 months. Any reading above 50 indicates conditions are improving.

Chris Williamson, chief business economist at IHS Markit, indicated that the impact of omicron has brought the U.S. economy to a "near standstill" because of supply-chain delays and staffing shortages, along with new restrictions to control the spread. However, he added that demand remains high and that business should pick up once those restrictions are relaxed.

Inflation Effect

IHS Markit also said that optimism among those surveyed waned on concerns about inflation and how customers would react to higher prices. It noted that, while the rate of increase in input costs was the slowest since last March, those costs were still at the highest levels in history. Companies pointed to bigger expenses for supplies and rising wages for the gains.

Merck: Stock of the Day

Shares of Merck & Co., Inc. (MRK) are falling after the drugmaker said the U.S. Food and Drug Administration (FDA) has requested information about the efficacy of its gefapixant treatment for chronic cough.

The company noted that the FDA accepted Merck's new drug application for gefapixant in March, and the current Complete Response Letter is not related to the safety of the drug.

Dr. Roy Baynes, senior vice president and head of global clinical development at Merck, said that the company remains confident about the treatment and will work with the FDA to address the questions raised.

Approval in Japan

Merck added that last week Japanese health officials approved the use of gefapixant for adults with refractory or unexplained chronic cough. However, it remains an investigational treatment in other countries and is still under review by regulators.

Merck shares are trading 3% lower, and they're now down 4% over the past year.

Article Sources
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  1. IHS Markit. "US Output Growth Slows to 18-Month Low as Omicron Wave Exacerbates Supply Delays and Labor Shortages."

  2. Merck. "Merck Provides U.S. and Japan Regulatory Update for Gefapixant."

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