Stocks end rocky week with 5th straight decline
» A turbulent week on Wall Street ended Friday with more losses and the stock market’s fifth straight weekly decline.
The latest pullback came as investors balanced a strong U.S. jobs report against worries the Federal Reserve may cause a recession in its drive to halt inflation.
The S&P 500 ended with a loss of 0.6%, having come back partway from a bigger loss of 1.9%. About 70% of the companies in the benchmark index fell. Technology stocks weighed down the index the most.
The Dow Jones Industrial Average fell 0.3%, while the Nasdaq slid 1.4%. Both indexes also pared some of their losses from earlier in the day.
Investors focused on new data Friday showing U.S. employers continue to hire rapidly, and workers are getting relatively big raises, although short of inflation. The market’s reaction reflects concerns among investors that the strong numbers would keep the Fed on track for sharp and steady increases in interest rates to corral inflation, analysts said.
The S&P 500 fell 23.53 points to 4,123.34. The Dow dropped 98.60 points to 32,899.37. The Nasdaq fell 173.03 points to 12,144.66.
Smaller companies fell more than the broader market. The Russel 2000 slid 31.58 points, or 1.7%, to 1,839.56.
Friday’s choppy trading followed even wilder gyrations this week, as all kinds of markets, from bonds to cryptocurrencies, grapple with a new market order where the Federal Reserve is moving aggressively to yank supports for the economy put in place through the pandemic.
The Fed is hoping to raise rates and slow the economy enough to snuff out the highest inflation in four decades, but it risks choking off growth if it goes too far or too quickly. The Fed raised its key short-term interest rate this week by a half a percentage point, the largest such increase since 2000. It also said more increases that size are likely on the way.
Not only do higher interest rates tap the brakes on the economy by making it more expensive to borrow, they also put downward pressure on prices of all kinds of investments.
Beyond interest rates and inflation, the war in Ukraine and the continuing pandemic also are weighing on markets.
Stocks nevertheless zoomed higher Wednesday afternoon, after latching onto a sliver of hope from Federal Reserve Chairman Jerome Powell’s comments following the latest rate increase. He said the Fed was not “actively considering” an even bigger jump of 0.75 percentage points at its next meeting, something markets had seen as a near certainty.
Jubilance was the market’s instant reaction, with the S&P 500 soaring 3% for its best day in nearly two years. It sobered up the next day, though, amid recognition that the Fed is still set to raise rates aggressively in its battle against inflation. The S&P 500 on Thursday lost all its prior day’s gains, plus a bit more, in one of its worst days since the early 2020 slump caused by the pandemic.
That may be why stocks faltered Friday, after data showed hiring is still strong and pressure remains high on companies to raise pay for workers.
“These data do not change the outlook for Fed policy; the rates trajectory remains upward in the near term,” Rubeela Farooqi, chief U.S. economist at High Frequency Economics, wrote in a note.
Many of the factors driving inflation higher could linger well into 2022, said Sameer Samana, senior global market strategist at Wells Fargo Investment Institute. The latest swings in the markets could mean investors are getting closer to better adjusting for the Fed’s aggressive policy shift, Samana said.
“Powell’s conference didn’t change anything; there’s still plenty of inflation,” he said. “You’re probably getting to point where the Fed at least won’t be as much of a market driver.”
Treasury yields also swung sharply after the release of the jobs report. The yield on the two-year Treasury, which moves with expectations for Fed policy, initially shot as high as as 2.77% earlier in the morning. But it then slipped to 2.70%, down from 2.71% late Thursday.