Nasdaq ekes out gain, S&P 500 and Dow extend losing streaks as Wall Street warns of more than 3 Fed rate hikes in 2022

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The tech-heavy Nasdaq Composite Index eked out a slight gain in the final minutes of trading on Monday, after bearing the brunt of a broader stock selloff earlier in the day, while the S&P 500 and Dow industrials extended their losing streaks, with worries about Federal Reserve policy reverberating in financial markets.

Three Wall Street firms — Goldman Sachs Group Inc., JPMorgan Chase & Co., and Deutsche Bank AG — said they see the Fed delivering more than the three rate hikes that policy makers have penciled in for this year.

How did stock indexes trade?
  • The Nasdaq Composite Index COMP eked out a gain of 6.93 points, or less than 0.1%, to close at 14,942.83. The index, which was down 2.7% at its session low, saw its biggest intraday comeback since Feb. 28, 2020, according to Dow Jones Market Data.
  • The Dow Jones Industrial Average DJIA, -0.45% finished down by 162.79 points, or 0.5%, at 36,068.87, after dropping 592 points at its session low. It’s dropped 730.78 points over the last four consecutive trading days for its longest losing streak since Oct. 13.
  • The S&P 500 index SPX, -0.14% closed down by 6.74 points, or 0.1%, at 4,670.29. It’s been down five consecutive trading days, the longest losing streak since Sept. 10.
What drove markets

Investors positioned for the prospect of higher interest rates as soon as March, with parts of Wall Street joining many economists in saying the Fed has waited far too long to hike. Traders also braced for a consumer-price report on Wednesday that could show a 7% headline year-over-year rise for December, a level which may not let up until the March reading.

While still around some of its lowest level since mid-October, the Nasdaq avoided closing below its 200-day moving average, at 14,688.73, for the first time since April 21, 2020, according to Dow Jones Market Data. It also stayed above the 14,451.69 level that would have marked a correction, or 10% fall from its recent peak.

Read: As stock market unravels Monday, here’s the level the Nasdaq needs to defend to avoid a correction

In an interview that aired on Monday, JPMorgan Chief Executive Jamie Dimon told CNBC that the U.S. is headed for the best growth in decades, and that he’d be surprised if the Fed hikes by only four times this year. That’s more than the three hikes signaled by Fed officials in their December projections.

Economists at both Deutsche Bank DB, -1.49% and Goldman Sachs GS, +0.42% expect four rate hikes this year, and a reduction of the Fed’s more than $8 trillion balance sheet that could begin in the third quarter. But Deutsche’s researchers also see the possibility that policy makers might need to consider hiking interest rates at almost every meeting in 2022 “unless financial conditions notably tighten,” Jim Reid, head of thematic research, and others wrote on Monday.

See: Almost every Federal Reserve meeting in 2022 could be potentially `at play’ for a potential rate hike, Deutsche Bank says

Goldman’s chief economist Jan Hatzius said in a late Sunday note that “declining labor market slack has made Fed officials more sensitive to upside inflation risks and less sensitive to downside growth risks.”

Friday’s labor report came in at 199,000 jobs in December, worse than forecast, but it also showed a decline in the unemployment rate to a pandemic low and a rise in wages. The labor-market reading came after Fed minutes released last Wednesday signaled that policy makers are eager to tighten financial policy to battle inflation, with market-based projections pointing to at least three interest-rate increases this year.

Also read: Jekyll-and-Hyde U.S. jobs report not as ugly as it looks

Some analysts are adopting a much more sanguine view of the market’s outlook, despite the imminent tightening of financial conditions.

On Monday, BlackRock Investment Institute’s global chief investment strategist, Wei Li, and others said that although central banks will move away from emergency stimulus, they won’t necessarily “hit the brakes by raising rates to restrictive levels.” In addition, the three rate hikes being penciled in by policy makers for this year is “more than we expected.” “We prefer equities and would use COVID-related selloffs to add to risk,” they wrote.

Check out: Why New Year’s chaos may signal a more balanced — but volatile — stock market in 2022 as investors grapple with a hawkish Fed

Later in the week, investors will watch the confirmation hearing of Federal Reserve Chairman Jerome Powell, followed by one for Lael Brainard, the Fed governor who has been nominated to become the central bank’s No. 2 after Vice Chairman Richard Clarida steps down. Clarida announced late Monday he would resign effective Jan. 14, two weeks before his term was due to end.

See: Fed’s Powell pledges to prevent inflation from developing deep roots

Which companies were in focus?
  • Lululemon Athletica LULU warned fourth-quarter earnings and revenue would be at the low end of its target, citing the impact of the omicron variant on capacity and staff. Shares finished 1.9% lower.
  • Shares of Take-Two Interactive Software TTWO, -13.13% were in focus after it said it would acquire Zynga ZNGA, +40.67% in a deal with enterprise value of $12.7 billion. The company intends to pay $3.50 in cash and $6.36 in Take-Two shares for each share of Zynga. Take-Two shares closed down by 13%, while Zynga shares finished 41% higher.
  • Popular meme stock GameStop Corp.’s shares GME, -6.73% closed down by 6.7% after outperforming some of its competitors on Friday.
  • Visa Inc. V, -2.30% shares finished 2.3% lower after Mizuho analyst Dan Dolev downgraded the company’s shares to neutral from buy on Friday. Dolev said that COVID-19 has sped up the move away from cash, but “dramatically and likely permanently shortened the cash-to-card conversion runway” — giving Visa possibly fewer opportunities for revenue growth going forward.
  • Nike Inc. NKE, -4.16% shares closed 4.2% lower after The Fly reported that HSBC analyst Erwan Rambourg downgraded his rating on the stock to hold from buy, and trimmed the stock’s price target to $182.
How did other assets fare?
  • The yield on the 10-year Treasury note rose 1 basis point to 1.78%, the highest since Jan. 17, 2020, based on 3 p.m. Eastern Time levels, according to Dow Jones Market Data. Treasury yields and prices move in opposite directions.
  • The ICE U.S. Dollar Index DXY, a measure of the currency against a basket of six major rivals, was up 0.3% Monday.
  • Oil futures CL00 traded lower, with West Texas Intermediate crude for February delivery CLG22 losing 67 cents, or nearly 0.9%, to settle at $78.23 a barrel.
  • Gold futures GC00 for February delivery GCG22, +0.14% gained $1.40, or nearly 0.1%, to settle at $1,798.80 an ounce.
  • Bitcoin BTCUSD was trading down 1.4% at about $41,765.
  • The Stoxx Europe 600 SXXP closed 1.5% lower, while London’s FTSE 100 UKX retreated by 0.5%.
  • The Shanghai Composite SHCOMP finished 0.4% higher, while the Hang Seng Index HSI closed up by 1.1%, and Japan’s Nikkei 225 NIK was closed for a holiday.

Steve Goldstein contributed to this article.