Failed market rally signals more trouble ahead for stocks

Published Thu, Jan 20 20225:30 PM ESTUpdated Thu, Jan 20 20225:37 PM EST

Patti Domm @in/patti-domm-9224884/@pattidomm

The stock market's violent late-day reversal Thursday signals more selling ahead, as investors worry about a hawkish Federal Reserve and the earnings season. Stocks rallied early in the session for a second day before weakening significantly in the final two hours of trading. The S & P 500 lost 50 points, or 1.1%, to end the day at 4,482 — below the key level of 4,500. Thursday's reversal was especially wild, with the Dow Jones Industrial Average traveling more than 800 points between its high and low. The Dow ended the day off 313 points at 34,715. "Again, it's rallies are to be sold," Bleakley Advisory Group chief investment officer Peter Boockvar said. "Just technically, the S & P looks like it will test the 200-day moving average. Today, it busted through the 100-day at 4,576." The 200-day moving average, a widely followed metric representing the average level at which an index or stock closes over 200 session, was at 4,427. The moving averages are popular levels to trade around and often act as support. Boockvar said investors are nervous about the Fed's upcoming meeting next week, where the central bank could give more clues about how much, and when, it expects to start raising interest rates. Fed officials have forecast three interest rate hikes for this year and are ending their bond purchases, or quantitative easing, in March — sooner than expected. The futures market shows traders are expecting an even more hawkish Fed, with four or more quarter-point hikes priced in for this year starting in March. "The end of QE itself in March is an event in and of itself ... and the market was way too nonchalant with that. History shows that QE is good for the market when they're doing it, and not good for the markets when they're not doing it," Boockvar said. The Fed has been winding down its $120 billion a month in bond purchases and was initially expected to end in June. Boockvar said the violent trading shows how nervous investors are becoming about tighter monetary policy. "We