Nasdaq turns positive after being down 4.9% earlier as market mounts big reversal Monday

The sell-off of U.S. stocks in 2022 gained intensity Monday as investors dumped risky assets like equities in anticipation of a less friendly Federal Reserve. A late-day rally helped mitigate the damage, however.

The Dow Jones Industrial Average lost more than 1,000 points at one point and the S&P 500 pulled back more than 10% from its Jan. 3 record close briefly, but stocks eased off their lows of the session.

The Dow Jones Industrial Average shed about 100 points, or 0.3%, falling for a seventh straight day. At its lows of the day, the blue-chip index shed about 1,115 points before a rally in the final hour of trading. The S&P 500 lost 0.4% and fell into correction territory at one point before rebounding.

The Nasdaq Composite touched briefly into positive territory after being down 4.9% at its low. The index dipped 0.2%.

The Russell 2000 index of small-cap shares rose.

JPMorgan's top stock strategist Marko Kolanovic said in a note Monday that the sell-off in equity markets is overblown.

"The recent pullback in risk assets appears overdone, and a combination of technical indicators approaching oversold territory and sentiment turning bearish suggest we could be in the final stages of this correction," Kolanovic said. "While the market struggles to digest the rotation forced on it by rising rates, we expect the earnings season to reassure, and in a worst case scenario could see a return of the 'Fed put.'"

Monday's pullback put the S&P 500 down roughly 8% this month, on pace for its worst monthly performance since March 2020. The rout this year initially centered around the Nasdaq and technology stocks with investors rotating out of shares whose valuations look less attractive as rates rise.

However, lackluster earnings reports and geopolitical tensions have caused the selling to spread across equity markets. Even with the late-day comeback, Monday's sell-off was broad-based with just 4 names in the Dow trading positively. Visa was the top decliner on the Dow with a more than 3% loss. Signature Bank led losses on the S&P 500, falling more than 6%.

The CBOE Volatility Index (VIX), known on Wall Street as the market's "fear gauge," hit its highest level since November 2020, surpassing the 38 level at its intraday highs. The market action Monday followed a brutal week on Wall Street in the face of mixed company earnings and worries about rising interest rates.

The fourth-quarter earnings season has been a mixed bag. While more than 74% of S&P 500 companies that have reported results have topped Wall Street estimates, a couple of key firms let down investors last week, like Netflix and Goldman Sachs.

Investors are eyeing the Fed's policy meeting, which wraps up on Wednesday. Market participants will be looking for any signals on how much the central bank will raise interest rates this year and when it will start.

"The greatest fear is how the Fed reacts and keeps this balancing act," Ann Miletti, head of active equity at Allspring Global Investments, told CNBC's "Squawk on the Street" on Monday. "There's going to be a lot of turbulence as we march through these next couple of months."

The Federal Open Market Committee, which sets interest rates, is meeting with expectations that it will not act at the January meeting but will tee up the first of multiple rate hikes starting in March. In addition, the Fed is expected to wrap up its monthly asset purchase program that same month.

At his post-meeting news conference, Chairman Jerome Powell also could signal when the Fed will start to unwind its mammoth balance sheet.

Goldman Sachs said over the weekend that it sees risks rising that the Fed could enact even more than the four quarter-percentage-point hikes that the market has priced in for this year. The firm also said the Fed might start running off the nearly $9 trillion in assets it is holding in July.

Investors also monitored geopolitical tensions as Russia built up its military presence at the Ukrainian border. President Joe Biden is set to speak with European leaders Monday amid fears of a possible Russian invasion of Ukraine.