News

By Chuck Mikolajczak

NEW YORK (Reuters) – The S&P 500‘s 1% slump on Tuesday confirmed that the world’s most watched stock index was in a correction for the first time since the 2020 Wall Street plunge brought on by the COVID-19 pandemic.

U.S. investors sold stocks amid growing fears of war between Russia and Ukraine, paring some losses after U.S. President Joe Biden announced a wave of sanctions against Russia.

Those geopolitical concerns have added to recent worries about the possible path of the U.S. Federal Reserve’s interest rate hikes as the central bank attempts to rein in inflation at 40-year highs.

Earlier, NATO Secretary-General Jens Stoltenberg said that the alliance believed Russia was still planning a big assault on Ukraine following Moscow’s recognition of two separatist regions in the former Soviet republic’s east.

The S&P 500 is now down 10.25% from its record closing high of 4,796.56 set on Jan. 3, confirming a correction, based on a widely used definition of a decline of 10% or more. The index had briefly been down more than 10% from its intraday record several times in recent trading sessions, without closing at that level.

GRAPHIC: S&P 500 Corrections and Bear Markets – https://fingfx.thomsonreuters.com/gfx/mkt/lbpgnwgmrvq/Pasted%20image%201643397044082.png

The small-cap Russell 2000 index last month confirmed it was in a bear market, or drop of 20% from its most recent high. However, some analysts feel smaller stocks are in the process of bottoming out.

Also in January, the Nasdaq confirmed that it had entered its fourth correction since the start of the pandemic. It is down almost 17% from its record high close in November.

GRAPHIC: Index corrections – https://fingfx.thomsonreuters.com/gfx/mkt/xmvjoegqnpr/Pasted%20image%201645567996374.png

Rising interest rates tend to disproportionately weigh on shares of high-growth companies as investors value them based on earnings expected years into the future, and high interest rates erode the value of future earnings more than the value of earnings made in the short term.