Wall Street’s Swings continue as the Federal Reserve Meets

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The dizzying swings on Wall Street continued for a second day on Tuesday, driven again by uncertainty about what the Federal Reserve might reveal on Wednesday, after its first policy-setting meeting of the year.

The S&P 500 is on the edge of a correction, a drop of 10 percent from its January high that signifies the markets swiftly changing attitude about the prospects for stocks in the immediate future. Though swings in stock prices on Tuesday were not as dramatic as the day before, the push-and-pull between buyers and sellers was evident: The S&P 500 fell as much as 2.7 percent at its lowest point before recouping some of those losses.

Just after midday, the index was down about 1.8 percent. The Nasdaq composite fell about 2.7 percent.

Investors are focused on the Fed’s next move, as the central bank rushes to pull back its support for the economy, instead shifting its focus to tacking inflation. The central bank has already said it will stop buying government bonds soon, and investors expect it to start raising interest rates as soon as March.

The central banks two-day meeting, which begins on Tuesday and concludes with a policy statement and news conference on Wednesday, will be its last such event until mid-March, and the wait for any new pronouncements about how aggressive the Fed may need to be has been agonizing for stock investors.

“The markets really want to have a clear understanding of what the Fed’s going to do and how fast they’re going to do it,” said Lindsey Bell, the chief money and markets strategist at Ally Invest. “Volatility will persist until that larger clarity is truly understood.”

The worry, which several analysts say is overblown, is that the Fed will decide it is starting its inflation fight too late and move more aggressively than investors anticipate. It’s a concern that belies the efforts of the Fed chair, Jerome H. Powell, efforts to signal upcoming changes well in advance, so as not to surprise financial markets.

There’s no question, though, that investors have become unsettled by the idea that interest rates are going to rise this year, no matter how quickly. Stocks have tumbled all month long, hitting a peak on Jan 3. before falling on most other days. For the year so far, stocks have climbed only five times out of 16 trading days.

But until this week, that decline was relatively steady — the S&P 500 has not ended any day this year more than 2 percent below where it started. That makes the shift in sentiment this week notable: On Monday, stocks plunged as much as 4 percent as a wave of panic hit Wall Street, heading for what would have been one of the worst daily declines in more than a year. Then buyers stepped in and stocks rallied, ending the day with a small gain.

Part of Wall Street’s concern is that the Fed has room to be aggressive in its fight against inflation because the Omicron variant of the coronavirus is proving less severe than previous forms. Minutes from the central bank’s December meeting, which it published in January, also showed that the Fed had discussed moving with more urgency.

“Data suggest that the impact of Omicron will be short-lived, and that consumers are learning to live with the virus,” Lauren Goodwin, an economist and portfolio strategist at New York Life Investments, wrote in a note.

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