U.S. stock futures dropped in pre-market trading Tuesday after a whipsaw previous session as investors continue to fret over fast-approaching rate hikes and a lackluster start to earnings season.
Contracts on the S&P 500 were down 1.28%, while futures tied to the Dow edged 0.73% lower. Nasdaq futures fell sharply, recording a decline of 1.82% ahead of the daytime session. All three major indexes staged a massive recovery on Monday after a steep sell-off: the Dow recovered losses of more than 1,100 points to end higher, and the S&P 500 bounced back from correction territory to close in the green.
The CBOE volatility index, or VIX, closed Monday at about 29.90 after crossing above 37 in intraday trading, its highest level since November 2020. In their newsletter, Nicholas Colas and Jessica Rabe of DataTrek Research sounded the alarm on recent jumps by the so-called “fear gauge.” The VIX closed last week’s trading at 29 to pass the initial 28 level DataTrek deemed significant, or “the first statistically valid level of market panic.” In Monday’s session, the VIX hovered around 38 before retreating, briefly passing the next level the firm said to watch for: 36.
“If you are trading this market, we continue to advise caution,” the DataTrek founders said. “Clarity on Fed policy will not come until Wednesday’s FOMC meeting, and even then, commentary from the Fed and Chair Powell may be insufficient to calm investors.”
The downward momentum in equities was fueled by escalating worries around monetary policy as the Federal Reserve looks to intervene on rising inflation levels more aggressively than previously anticipated with tighter policy and rate hikes. Investors are bracing for the central bank’s January monetary policy meeting, set to begin Tuesday, followed by a new monetary statement and press conference with Fed Chair Jerome Powell on Wednesday.
“The Fed is in a very tough spot,” MJP Wealth Advisors President Brian Vendig told Yahoo Finance Live. “They know history has shown that if they move too quickly on interest rates, it adds to the…