Stocks slide as a bout of market volatility continues

The virus pandemic still hovers over the economy and threatens to crimp progress with every new wave. The International Monetary Fund cited the omicron variant as the reason it has downgraded its forecast for global economic growth this year.

And a potential conflict between Russia and Ukraine threatens to push energy prices even higher while forcing more countries to focus on fighting a war instead of inflation and COVID-19.

Stock indexes fell sharply to start the day, but were off their lows by late afternoon, a sign that some investors are betting that a dimmer outlook for economic growth may prompt the Fed to take a more measured approach to raising interest rates.

"Weaker economic growth projections have contributed to investors breathing a sigh of relief that the Fed won't have to be overly aggressive," said Sam Stovall, chief investment strategist at CFRA.

The S&P 500 fell 1% as of 3:33 p.m. Eastern. The benchmark index, which was down 2.8% in the early going, has been falling steadily ever since hitting a record high on the first trading day of the year, Jan. 3. It's now getting closer to entering a "correction," which among markets watchers means a drop of 10% from a peak.

The Dow Jones Industrial Average fell 81 points, or 0.2%, to 34,288. The blue-chip index had been down 818 points in morning trading. The tech-heavy Nasdaq fell 1.7%. The index had initially slumped 3.2%. The Nasdaq entered a correction last week and is now down more than 15% from its high set on Nov. 19.

Small company stocks also lost ground, pulling the Russell 2000 index 0.4% lower.

Major indexes had a similar start to trading on Monday and were down most of the day before a late buying spree pushed them to a higher close. That rebound may have been just a "head fake," said Barry Bannister, chief equity strategist at Stifel. More declines are likely in store for the market, he said.

The market downturn reflects Wall Street's worry over signs of slowing economic growth because of COVID-19 and a Fed that can't really go back on what it said it would do, Bannister said.

"The market has come to terms with that and that's a big deal," he said. "Fiscal and monetary tightening, together, is tough on financial assets when they're coming off of a rip-roaring party from stimulus."

Even though the S&P 500 managed to eke out a gain after its roller-coaster ride on Monday, a measure of nervousness on Wall Street known as the VIX index remained high. That suggests stress is continuing to grow in the system, with markets in a "high speed spin cycle," strategists at UBS wrote in a report.

Futures contracts related to the VIX, meanwhile, indicate investors are preparing for a high level of volatility in the near term but less in ensuing months. That's a flip from their typical behavior last year.

Technology stocks again led the losses as investors worry about rising interest rates. Higher interest rates tend to make shares in high-flying tech companies and other expensive growth stocks less attractive. Microsoft fell 2%.

Retailers and communications companies also fell. Home Depot fell 1.5% and Netflix fell 5%. U.S. crude oil prices rose 2.7% and helped send energy stocks higher. Occidental Petroleum jumped 8.2%.

American Express surged 9.2% for the biggest gain in the S&P 500 after the credit card company reported that its fourth-quarter earnings rose 20% from a year earlier.

Bond yields rose. The yield on the 10-year Treasury rose to 1.78% from 1.74% late Monday.

The price of gold, often considered a hedge against inflation, rose 0.6%.

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Associated Press Business Writer Stan Choe contributed.