The Fed isn't the only problem investors are worried about

The Federal Reserve will be raising rates, just as the economy is slowing. The markets hate that.

Why it matters: The ugly start to the stock trading year doesn't just reflect Fed-induced agita — investors are also worried about a growth slowdown.

Driving the news: The S&P 500 has tumbled 8.7% since the start of the year. It's the second-worst start ever for the stock market, after the financial crisis year of 2008, per records stretching back to 1929.

State of play: The equities sell-off has been driven largely by expectations the Fed will shift away from the kind of low-rate policies that it put in place during the pandemic. Those policies helped supercharge stock returns.

The big picture: Economists are expecting the economy to hit a pothole at almost exactly the moment the Fed starts hiking rates.

• Analysts have cut their forecasts for Q1 growth to about 3% from an annualized pace of 4.2%.
• This largely reflects the impact of Omicron. Most expect growth to rebound once the COVID-19 variant fades.

Yes, but: Forecasts are just best guesses. The slowdown could also be worse. Here's why...

• Recent economic data has been far weaker than expected, according to the Citi Economic Surprise Index, the best thumbnail sketch of how the economy is performing relative to expectations.
• Surging oil prices — they're at their highest since 2014 — will be eating into consumer spending elsewhere and eroding confidence.
• Perhaps most importantly, the flow of federal dollars into the pockets of the poorest American consumers that began during the pandemic has largely dried up.

Goldman Sachs economists recently estimated that the end of the Child Tax Credit and other federal transfers mean that yearly incomes among the lowest-earning fifth of the country will tumble 20% this year.

• "The significant stepdown in household income is one reason why we expect growth will decelerate from 5.4% in 2021 to 2.4% in 2022," Goldman analysts wrote.

The bottom line: Slowing growth. Higher rates. Less federal aid for the economy. Oh, and the prospect of a land war in Europe.

• You can't blame some people for pocketing their gains and stepping to the side.

Go deeper: The Fed's inflation fight ignites interest rate debate