The S&P 500 is on track for its worst January ever. Here’s why stocks are getting hit so hard

cnbc.com:

It's a sea of red in the stock market on Monday, and there are several factors that are dragging stocks down in January.

The Dow Jones Industrial Average fell as much as 1,000 points on Monday. The S&P 500 is off by 2%, with only a handful of companies in the entire index trading in the green. The Dow and S&P 500 are now on pace for their worst month since March 2020, when the market fell into turmoil amid the pandemic.

The Nasdaq Composite is down 4.2% on Monday. The index is on pace for its worst start to the year since 2008.

And maybe most notably, the S&P 500, off 10% this month, is headed for its worst January ever. This is unusual as the stock market typically starts the year on strong footing as investors put money to work in stocks.

Though some areas of the market considered more expensive or speculative began to struggle in November, the broader market took a big step back during the first week of January following increasing hints from the Federal Reserve that the central bank will take aggressive action to slow down the jump in consumer prices.

«Over the past month, the Federal Reserve (Fed) has made it increasingly clear that it is serious about fighting that inflation,» the Wells Fargo Investment Institute said in a note to clients on Jan. 19.

The central bank has signaled that it plans to stop its asset purchases, hike rates and possibly reduce its balance sheet, starting in March. Government bond yields have surged in preparation for the rate increases, with the U.S. 10-year Treasury rising more than 40 basis points this year alone to nearly 1.9% at its high point after finishing last year just above 1.5%. (1 basis point equals 0.01%.)

Investors are now expecting four rate hikes this year, with some