Nervousness over interest rates and inflation sends equities teetering
NEW YORK – Stocks fell Friday on Wall Street, leaving the S&P 500 with its biggest one-day loss in nearly seven weeks, as concerns mount over soaring interest rates and the efforts of the US central bank to fight inflation.
Several disappointing corporate earnings reports also rattled what had been the market’s main support.
The S&P 500 fell 2.8% and marked its third consecutive losing week. The Dow Jones Industrial Average also fell 2.8%, its biggest drop in 18 months, after briefly skidding more than 1,000 points. The Nasdaq also had its worst day in nearly seven weeks, closing down 2.6%.
A day earlier, Wall Street appeared poised for healthy gains for the week after American Airlines, Tesla and other big companies reported strong earnings or better future earnings forecasts than analysts expected. . Such corporate optimism has helped stocks remain relatively resilient, even as worries swirl about the highest inflation in decades, as well as the war in Ukraine and the coronavirus.
But markets slumped as the Federal Reserve Chairman signaled that the central bank could indeed raise short-term interest rates by double the usual amount in upcoming meetings, starting in two weeks.
“The Fed still needs to push its hawkish rhetoric,” Kelsey Berro, bond portfolio manager at JPMorgan Investment Management, told Bloomberg TV. “They would ideally like to be above 2% by the end of the year and I think the economy will work with them on that. We still see the US economy as quite resilient. There’s a lot of pent-up demand for spending especially on the services side.”
The Fed has already raised its key overnight rate once, the first such increase since 2018, as it aggressively cuts the huge aid provided to the economy during the pandemic. He is also preparing other measures to put upward pressure on longer-term rates.
By making borrowing more expensive for businesses and households, the higher rates are meant to slow the economy, which should hopefully halt the worst inflation in generations. But they can also trigger a recession, while putting downward pressure on most types of investments.
“After years of being very dovish, the Fed has made it clear that its policy is going to be tougher for the foreseeable future,” said Brian Price, head of investment management for Commonwealth Financial Network. “Their hawkish stance gives investors pause as many must assess the impact on profit margins and [stock] multiples that go forward.”
The S&P 500 fell 121.88 points to 4,271.78. The Dow Jones lost 981.36 points to 33,811.40. The Nasdaq lost 335.36 points, closing at 12,839.29. The Dow Jones and Nasdaq also posted losses for the week.
Shares of smaller companies also fell sharply. The Russell 2000 slipped 50.80 points, or 2.6%, to 1,940.66.
A preliminary report on Friday said growth in the U.S. services industry was slowing, particularly due to soaring fuel costs, wages and other expenses.
Treasury yields have soared as investors brace for a more aggressive Fed, and stocks have often moved in the opposite direction. The 10-year Treasury yield slipped to 2.90% from 2.91% on Thursday night but remains close to its highest level since 2018. It started the year at 1.51%.
The two-year Treasury yield, which moves more in line with expectations of Fed action on short-term rates, rose further. It was at 2.69% on Friday night after more than tripling from 0.73% at the start of the year.
Markets around the world are feeling similar pressure on rates and inflation, especially in Europe as the war in Ukraine drives up oil, gas and food prices.
On Wall Street, most stocks fell, including more than 95% of S&P 500 companies. Technology and healthcare companies were among the largest weights. Apple fell 2.8% and Microsoft 2.4%.
HCA Healthcare fell 21.8% for the biggest decline in the S&P 500 after reporting weaker earnings per share for the last quarter than analysts expected. The hospital operator also cut its revenue and profit forecast ranges this year.
Verizon Communications fell 5.6% after saying it expected earnings for the year to be at the lower end of the range it had previously forecast. The company also reported slightly weaker than expected revenue for the first three months of the year.
Retailer Gap fell 18% after it cut its sales forecast for the current fiscal quarter and said the CEO of its Old Navy business would leave the company.
The company’s disappointing results and outlook, along with Powell’s remarks on Thursday, heightened concerns among investors who are already trying to navigate economic uncertainty amid ongoing global supply chain issues, the pandemic and the war in Ukraine,” said Greg Bassuk, CEO of AXS Investments.
“Looking ahead, it puts a bitter taste in investors’ mouths about the likelihood of stronger corporate earnings for the remainder of 2022,” he said.
Information for this story was provided by Yuri Kageyama of The Associated Press and Stephen Kirkland and Vildana Hajric of Bloomberg News (WPNS).