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

Although the trading was not as turbulent as on Monday, when stocks fell 4% before ending with a gain, the push-and-pull between buyers and sellers was evident: The S&P 500 fell nearly 3% at its lowest point Tuesday before recouping most of those losses.

The index briefly crossed into positive territory, but it ended the day down about 1.2%. The Nasdaq composite fell 2.3%.

Trading has been volatile with the S&P 500 hovering just above a drop of 10% from its January high, a marker known as a correction that signifies the market’s swiftly changing attitude about prospects for stocks in the immediate future.

Investors are focused on the Fed’s next move as it focuses on slowing inflation by pulling back on its support for the economy. The central bank has said it soon will stop buying government bonds, and investors expect it to start raising interest rates in March.

But stock investors were agonizing over what the Fed may say Wednesday as it concludes a two-day meeting, and that has led to the big swings in prices this week.


“The market has been behaving incoherently, not knowing whether to go down because the Fed is tightening or go up because the Fed is actually taking action to rein in inflation,” said Anu Gaggar, a strategist for Commonwealth Financial Network. “That’s why tomorrow’s Fed meeting is important. It will provide some much-needed clarity on where the Fed officials’ heads are.”

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

No matter, there’s no question that investors have become unsettled by the idea that interest rates will rise this year. Higher rates can slow the economy, making borrowing for houses, cars and business costs more expensive. They also discourage investors from bidding up risky assets like stocks.

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 appears, by some measures, to be less severe than previous forms. Minutes from the central bank’s December meeting, which it published early in January, also showed that the Fed had discussed moving with more urgency.

Stocks, which hit a peak Jan 3, have climbed in only 5 of 16 trading days this month, and the S&P 500 is now down 9.2% from its high.

“This sell-off almost smacks of fears that this will lead to a recession, but the Fed hasn’t even started to tighten,” said Edward Yardeni, an economist. “There is an overreaction here.”


It’s telling, analysts say, that the bond market, which in many ways is more closely tied to the Fed and the economy in general, appears to be taking the current moment in stride.

Typically, when investors grow particularly nervous about the economy, they pile into the bond market — causing prices to rise and bond yields, which move in the opposite direction of prices, to drop.

That’s not happening now. Yields have dipped in the past week, but not by much. The yield on 10-year Treasury notes, for instance, was basically unchanged Tuesday and had fallen only slightly in the past week to 1.78%.

“The bond market is not willing to move decisively in one direction or another because the economy is still in pretty good shape,” said Vincent Deluard, a strategist at StoneX Group.

That’s not to say investors and the economy aren’t facing some risks. Disruptions are slowing output at factories, companies are struggling to find workers and rising prices will eat into consumer demand. On Tuesday, the International Monetary Fund reduced its estimate for global growth to 4.4% from the 4.9% it projected just three months ago.

The IMF still expects the U.S. economy to grow 4% this year, but that would be slower than in 2021. The fund said the failure of the Biden administration’s $2.2 trillion social-policy package and the Fed’s tighter monetary policy were among the reasons it had reduced the growth forecast for the United States.


The recent concern about the Fed is also colliding with earnings reporting season, with some of the biggest companies in the S&P 500 scheduled to update investors on the state of their businesses and their outlook for the year. Because of their size, those companies — Microsoft, Apple, Amazon, Alphabet and Tesla — can influence the direction of market indexes like the benchmark S&P 500, which they lifted higher as they rose to astronomical valuations in 2021.

This month, all five of those stocks have dropped at least 10%, pulling the broad market benchmark lower.

On Tuesday, Microsoft reported sales and profits that were higher than analysts had expected. Its shares still fell more than 5% in after-hours trading, suggesting that investors were still disappointed in aspects of Microsoft’s report.

Tesla will report results Wednesday, Apple on Thursday, and Amazon and Alphabet next week.

It hasn’t all been bad news for company earnings. IBM reported Monday that its revenue rose 6% in the last three months of 2021, and its shares jumped 5.7% on Tuesday. Shares of American Express rose nearly 9%, making it the best performer in the S&P 500 on Tuesday, after it reported that revenue rose 30% from a year earlier to $12.1 billion amid growth in spending among its card members.

Still, that good news hasn’t been enough to break the Fed’s grip on stock sentiment, although worries about the central bank could ease starting on Wednesday if investors get a better reading on what will happen next.

“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, chief money and markets strategist at Ally Invest. “Volatility will persist until that larger clarity is truly understood.”