Stocks tumbled on Wall Street Friday as worries deepen about a surge in interest rates as the Federal Reserve struggles to fight inflation.
The Dow Jones Industrial Average closed down 981 points, or 2.8 percent, its biggest drop in 18 months, after briefly skidding more than 1,000 points.
The S&P 500 sank 2.8 percent and marked its third losing week in a row. The Nasdaq also had its worst day in nearly seven weeks, closing 2.6 percent lower.
Markets buckled as the chair of the Federal Reserve indicated the central bank may hike short-term interest rates by 50 basis points, double the usual amount at upcoming meetings, starting in two weeks.
The slump ended a whipsaw week of surprise earnings news and increased certainty around aggressive near-term interest rate rises, which also pushed them into negative territory for the week.
Exaggerated trading swings have become more common recently, as traders adjust to new data points from earnings, as well as when rates will rise again.
‘It’s not very common, over the course of my time doing this job, for the market to move 2 percent in either direction and to think ‘there’s not too much to read into that’,’ said Craig Erlam, senior market analyst at OANDA .
‘That’s not normal, but that’s just how things have been for such a long time now.’
The Dow Jones Industrial Average closed down 981 points, or 2.8 percent, its biggest drop in 18 months, after briefly skidding more than 1,000 points
Stocks are opening lower on Wall Street on Friday capping a bumpy week as the Federal Reserve promises to be more aggressive about fighting inflation
On Thursday, Wall Street seemed set for healthy gains for the week after American Airlines, Tesla and other big companies reported strong profits or better forecasts for future earnings than analysts expected.
Such corporate optimism has helped stocks remain relatively resilient, even as worries swirl about the highest inflation in decades, the war in Ukraine and the coronavirus.
But markets reversed after Fed Chair Jerome Powell’s remarks on Thursday suggesting that the central bank could raise benchmark rates from 0.50 percent to 1 percent at its upcoming meeting.
The Fed has already raised its key overnight rate once, the first such increase since 2018, as it aggressively removes the tremendous aid thrown at the economy through the pandemic. It’s also preparing other moves to put upward pressure on longer-term rates.
By making it more expensive for businesses and households to borrow, 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, all while putting downward pressure on most kinds of investments.
‘After years of being very accommodative, the Fed has made it clear that policy is going to be tighter for the foreseeable future,’ said Brian Price, head of investment management for the Commonwealth Financial Network.
‘Their hawkish stance is giving investors pause as many are left to evaluate the impact on profit margins and (stock) multiples moving forward.’
The S&P 500 sank 2.8 percent and marked its third losing week in a row
A preliminary report on Friday indicated the US services industry’s growth is slowing, hurt in particular by surging costs for fuel, wages and other expenses.
Treasury yields have soared as investors prepare for a more aggressive Fed, and stocks have often moved in the opposite direction of them. The yield on the 10-year Treasury is at 2.90%, down from 2.91% late Thursday, but still close to its highest level since 2018. It began the year at 1.51%.
The two-year Treasury yield, which moves more on expectations for Fed action on short-term rates, has zoomed even more. It’s at 2.71% 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, particularly in Europe as the war in Ukraine pushes up oil, gas and food costs.
Germany’s DAX lost 2.5% Friday, while France´s CAC 40 fell 2%. The FTSE 100 in London dropped 1.4%.
Beyond developments in Ukraine, a presidential runoff election in France this weekend could also tilt markets.
In Asia, Japan´s Nikkei 225 fell 1.6 percent, and South Korea´s Kospi lost 0.9%. Stocks in Shanghai added 0.2 percent after authorities there promised to ease anti-virus controls on truck drivers that are hampering food supplies and trade.
On Wall Street, most stocks were falling, with health care companies among the biggest weights.
The Nasdaq also had its worst day in nearly seven weeks, closing 2.6 percent lower
HCA Healthcare slumped 19.2% after reporting weaker earnings per share for the latest quarter than analysts expected. The hospital operator also cut its forecasted ranges for revenue and earnings this year.
Verizon Communications sank 5.8% after it said it expects earnings for the year to fall at the lower end of the range it had previously forecast. The company also reported slightly weaker revenue than expected for the first three months of the year.
Retailer Gap dropped 19.1 percent after it cut its forecast for sales for the current fiscal quarter and said the CEO of its Old Navy business will leave the company.
The general trend across Wall Street, though, has been a more optimistic one recently. The majority of companies have topped analysts’ expectations so far this earnings reporting season, which is about a fifth of the way through.
Kimberly-Clark, the manufacturer whose brands include Huggies diapers and Kleenex, rose 9.3 percent for one of the biggest gains in the S&P 500 after it reported stronger profit and revenue for the latest quarter than analysts expected.
SVB Financial Group jumped 10.7 percent after also reporting higher earnings per share than expected.
The parent company of Silicon Valley Bank raised its forecast for revenue this year, partly due to higher interest rates and strong demand for loans from technology and other clients.