NEW YORK — The Dow Jones Industrial Average dropped more than 1,000 points Monday as financial markets slowed in anticipation of inflation-fighting measures from the Federal Reserve and the possibility of conflict between Russia and Ukraine. Stocks put the benchmark S&P 500 on track to close in what the market considers a correction — a drop of 10% or more from its most recent high. The Dow was down 2.9% at the end of the day, while the S&P 500 was down 3.6%. The Russell 2000 index of smaller companies, whose fortunes are more closely tied to the domestic economy, is down more than 20% from its recent high.
The Fed is holding a policy meeting this week and investors worry about how aggressively it will act to cool rising inflation. Wall Street expects to see the first increase in interest rates as early as March, and investors are increasingly worried that the Fed will have to raise rates faster and more often than originally indicated by the central bank.
The Fed's benchmark short-term interest rate is currently in a range of 0% to 0.25%. According to CME Group's Fed Watch tool, investors are now seeing a nearly 70% chance that the Fed will raise the rate by at least one percentage point by the end of the year.
Federal Reserve policymakers will make their latest statement on Wednesday.
The energy and raw materials sector is in a decline on Monday. Freeport McMoRan fell 4.6% and General Motors fell 4%. Technology stocks were among the heaviest weights on the market as investors moved away from pricier stocks in anticipation of rising interest rates. Higher rates make shares in high-flying tech companies and other expensive growth stocks less attractive. Apple fell 1.7% and Microsoft lost 1.8%.
A wide range of retailers, travel-related companies and others that rely on direct consumer spending also fell and weighed down the broader market. Target fell 1.1% and Carnival fell 5%. Bond yields were lower. The yield on the 10 year Treasury fell to 1.72% from 1.74% late Friday.
The banks that rely on higher yields to charge more lucrative interest on loans rely on falling yields to weigh on their ability to charge more lucrative interest on loans. The Bank of America fell 3.8%.
Inflation is putting pressure on businesses and consumers as demand for goods continues to surpass supplies. Supply chain problems and rising raw materials costs could crimp their finances, according to companies. Retailers, food producers, and others have been raising prices on goods to try and offset the impact.
The rising costs are raising fears that consumers will start to lessen spending because of the constant pressure on their wallets.
In a bid to gauge how companies are dealing with higher prices and what they plan to do as inflation continues to pressure operations, investors are watching the latest round of corporate earnings.
Monday is a relatively quiet day for earnings but the pace picks up on Tuesday with American Express, Johnson, and Microsoft reporting results. Boeing and Tesla released their results on Wednesday. Wall Street has several key economic reports to look forward to this week. Investors will get more data on how consumers feel with the release of The Conference Board's Consumer Confidence Index for January. The Commerce Department releases its fourth quarter gross domestic product report on Thursday and its December personal income and spending report on Friday.