S&P 500 Rallies After Touching Correction Territory, Erasing Day’s Losses

So a slide in prices that removes some of that excess was long overdue, many market watchers said.

“We haven’t had a correction in a long time,” said Lindsey Bell, the chief money and markets strategist at Ally Invest. “While this sell-off in the past couple of weeks feels uncomfortable, the good news is that, the sooner you have a sell-off or correction like we’re seeing today, the earlier and the more likely you are to make up that lost ground before year-end.”

That doesn’t mean it won’t be a bumpy year for stock investors. Growth in corporate profits is likely to slow, in particular among large technology stocks, and many companies championed by investors during the pandemic, like Peloton and Netflix, have tumbled as a return to normal means they lose momentum with new customers.

But some investors are concerned that even the largest tech companies may be faltering, something that will be exacerbated if interest rates climb — forcing them to dedicate more of their profits to debt payments, and also making it harder to achieve investors’ high expectations for growth.

Technology stocks, which have been on the leading edge of the market decline this year, were also walloped on Monday: The tech-heavy Nasdaq composite slid about 5 percent, before it rallied back to end the day with a gain of about 0.6 percent. The Nasdaq had already crossed the correction threshold last week and is now down 13.7 percent from its high.

Microsoft, the next of the big tech companies to report its profits, is expected to say on Tuesday that its bottom line rose 12 percent in the final three months of last year compared with a year ago, a substantial slowdown from its previous quarter, which was its most profitable ever.

More broadly, earnings from tech companies are expected to have risen nearly 15 percent in the fourth quarter. That’s down from full-year growth of nearly 28 percent, according to the market research firm FactSet.

“The return to normalization that we will see this year will include more moderate growth and higher interest rates,” said Ryan Jacob, the portfolio manager of the Jacob Internet Fund. “That’s a difficult environment for large-cap tech.”

Jeanna Smialek, Jeff Sommer and Stephen Gandel contributed reporting.

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