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The year certainly started off on a hopeful note, but the wheels have come off the bull-market wagon, with a sharp tumble for the Nasdaq Composite and a similar slump for the Nasdaq-100 index marking the worst start for those tech-heavy benchmarks in over a decade.
The Nasdaq Composite
COMP,
ugly 3.3% Wednesday drop helped to saddle the benchmark with the worst start to a calendar year, down 3.48%, since 2008 when it dropped 5.6% in the first three trading sessions.
For the Nasdaq-100 index
NDX,
composed of the largest companies in the Nasdaq, the year-to-date decline is 3.36%, also representing its steepest slide to begin the first three days of a year in 13 years, when the financial crisis gripped the globe.
This time around, the COVID pandemic has wreaked havoc in supply chains and appears to be compelling the Federal Reserve to ratchet up its tightening cycle to combat out-of-control inflation, which is running well above its annual 2% target.
Read: Fed minutes suggest officials are primed to move away from easy policy stance
On Wednesday, minutes from the Fed’s mid-December gathering, its last of 2021, pointed to a faster timetable for raising interest rates in 2022, potentially as soon as in March, amid greater discomfort with high inflation. Market participants are anticipating at least three interest rate increases this year.
On top of that, and helping to rattle yield-sensitive segments of the market like tech, members of the Federal Open Market Committee signaled an interest in shrinking its roughly $8.8 trillion portfolio of bonds and other assets relatively soon after beginning to raise rates.
The minutes, usually a snoozer on Wall Street, drove selling in the market that already was on edge anticipating a central bank that would be less accommodative, even as the omicron variant of the coronavirus that causes COVID-19 fuels disruptions in the global economy.
See:Here’s what stock and bond market strategists say after Fed minutes point to the end of easy money
Omicron stumbles are expected to be short-lived, however. That may be why the Fed is inclined to dial down market-supportive bond purchases and lift interest rates, which currently stand at a range between 0% and 0.25%, closer to normal.
Investors weren’t taking it well, with the Dow Jones Industrial Average
DJIA,
snapping a two-day streak of record-high closes to end down 1.1% and the S&P 500
SPX,
skidding to a 1.9% drop on the session.
