Investors expect Fed to raise rates soon

more and more aggressive Federal Reserve,” said Ross Mayfield, investment strategy analyst at Baird. “Until over the weekend, I hadn’t seen any speculation about two rate hikes at the March meeting, and now you’re starting to hear that chatter.“

The S&P 500 fell 85.74 points to 4,577.11, the Dow fell 543.34 points to 35,368.47, and the Nasdaq fell 386.86 points to 14,506.90. The indexes all hit a new low for the year. The Nasdaq has borne the brunt of the losses, shedding 7.3 percent this month. That puts the index within 2.7 percent of a correction, Wall Street-speak for when a stock or index falls 10 percent or more from its last peak. The S&P 500 is down almost 4 percent for the month after setting an alltime high on the first trading day of the year.

The latest wave of selling comes as Wall Street tries to predict how much the Fed will raise interest rates, and how fast. The central bank has hastened its plan to trim bond purchases and is considering raising interest rates earlier and more often than Wall Street had expected.

The Fed is under pressure to curtail inflation, which jumped last month at its fastest pace in nearly 40 years. At the same time, the job market has bounced back from last year’s brief but intense coronavirus recession, leaving the unemployment rate last month at a pandemic low 3.9 percent, giving the central bank more leeway to rein in the unprecedented support it’s been providing the economy since the pandemic struck.

While higher rates could help stem the high inflation sweeping the world, they would also mark an end to the conditions that have put financial markets in “easy mode” for many investors since early 2020.

Higher rates also make shares in high-flying tech companies and other expensive growth stocks less attractive. Big technology stocks, which have an outsized influence on the S&P 500 because of their high valuations, have weighed heavily on the market this year as investors shift money in anticipation of the higher rates.

The sector was the biggest drag on the S&P Tuesday. Apple fell 1.9 percent and chipmaker Nvidia slid 3.9 percent.

Banks also weighed heavily on the market after Goldman Sachs said its fourth-quarter profit fell by 13 percent from a year earlier, largely due to the hefty pay packages Goldman is paying staff. Goldman’s results echoed those of JPMorgan and Wells Fargo last week, which also flagged lower profits and higher expenses due to increased employee compensation costs.

Goldman shares slumped 7 percent, while JPMorgan slid 4.2 percent. Wells Fargo was down 2.4 percent.

Small company stocks, a gauge of confidence in economic growth, also lost ground. The Russell 2000 index fell 66.23 points, or 3.1 percent, to 2,096.23.

Energy futures rose broadly amid supply fears following an attack on an oil facility in the capital of the United Arab Emirates. The price of U.S. crude oil rose 1.9 percent to $85.43 a barrel, a 7-year high. The rally in oil prices gave some energy stocks a boost. Exxon Mobil rose 1.7 percent.

Investors returning after U.S. markets were closed Monday for the Martin Luther King Jr. Day holiday also reviewed the latest batch of corporate earnings and deal news Tuesday.

Investors have a busy week of earnings reports ahead. A key focus will be on how companies in different industries are handling persistent supply chain issues. Many companies have already warned about the impact on their finances and operations, despite raising prices on consumer goods to offset the impact.

Bank of America, UnitedHealth and United Airlines report results today. American Airlines and Netflix report results on Thursday.