US stocks fell on Friday, posting their worst weekly performance of the year as hot economic data reignited concerns about the US Federal Reserve’s dovish policy.
The S&P 500 fell 42.28 points, or 1.1%, to 3970.04. The tech-heavy Nasdaq Composite fell 195.46 points, or 1.7%, to 11394.94. The blue-chip Dow Jones Industrial Average lost 336.99 points, or 1%, to 32816.92. The three indices all fell more than 2% in the holiday-shortened week, with each posting its biggest weekly declines in 2023.
The losses are the latest in a turbulent stretch for the market. Major indices rose in early 2023, with many investors betting that slowing inflation could prompt the Fed to cut rates later this year, but the outlook has clouded in recent weeks.
Investor enthusiasm quickly faded after a spate of reports suggested US inflation was more resilient than expected and the economy resilient, leaving the door open for the Fed to maintain aggressive monetary tightening measures to cool price pressures .
“The market is recalibrating and acknowledging that the road to price stability is fraught with obstacles,” said Quincy Krosby, LPL Financial’s chief global strategist. “The market is telling us to be cautious with a Fed that has to beat inflation and hurt the economy to do that.”
Adding to these worries on Friday, the price index for personal consumption spending in January exceeded economists’ expectations. The core metric excluding food and energy, considered the Fed’s preferred indicator of inflation, rose 4.7% year over year. That was above consensus forecasts for a 4.4% gain.
Short-term Treasury yields, which closely track investors’ interest rate expectations, surged on Friday to levels not seen in more than a decade after strong inflation data was released. The yield on the two-year Treasury note rose to 4.803% on Friday, the highest since 2007.
Meanwhile, the benchmark 10-year government bond yield rose to 3.948% on Friday, from 3.879% on Thursday. Bond yields rise when prices fall.
Federal funds futures, used by traders to bet on how interest rates will go, on Friday reflected bets that the central bank will take interest rates significantly higher than most investors had anticipated a month ago.
“The perception of monetary policy and its direction has changed dramatically,” said David Donabedian, chief investment officer at CIBC Private Wealth US. “What’s priced in today is more realistic than what people were pricing in right after the Fed meeting,” he said.
Traders who recently worked on the New York Stock Exchange. Stocks have faltered this month after a strong January.
Photo: Michael M. Santiago/Getty Images
However, as the economy is proving to be more resilient than many expected amid higher interest rates, some investors are becoming more hopeful that the Fed may be able to tame inflation without inflicting too much pain on the economy.
“It’s not quite Goldilocks, but if we can create an environment where growth can continue like it has, inflation keeps coming down and the Fed can ease interest rates, that’s a pretty good environment,” said Brian O’Reilly , Head of Market Strategy at Mediolanum International Funds.
Boeing led declines in the Dow on Friday, with the stock falling $9.98, or 4.8%, to $198.15 after the planemaker halted deliveries of 787 Dreamliner jets over a documentation issue.
Warner Bros. Discovery shares fell 18 cents, or 1.1%, to $15.55 after the entertainment giant’s quarterly earnings fell short of expectations and its chief executive warned that the US advertising market remains very challenging.
Shares of Carvana fell $2.07, or 21%, to $8.01 after the online used-car seller reported a bigger-than-expected quarterly loss and sales that missed analysts’ estimates
Front month futures contracts for Brent crude rose 1.2% to $83.16 a barrel. The international oil benchmark fell this month as a sharp rise in US crude inventories sparked fears that oil demand is faltering in the world’s largest economy.
Overseas, Asian indices were mixed. In Japan, the Nikkei 225 rose 1.3% after the nominee for the leadership of the Bank of Japan said inflation, now at a four-decade high, would fall soon without a rate hike. In Hong Kong, the Hang Seng Index fell 1.7%, while China’s Shanghai Composite slipped 0.6%.
European markets were broadly lower. The pan-continental Stoxx Europe 600 lost 1%.
Write to Will Horner at [email protected]
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