Stocks fell again on Wall Street on Friday, capping the Standard & Poor’s 500’s worst weekly decline since the pandemic began.
Investors are increasingly worried about rising inflation and the aggressiveness of the Federal Reserve in raising interest rates to curb it. Record-low rates helped support the broader market as the economy absorbed a hit from the pandemic in 2020 and then recovered over the past two years.
The S&P 500 fell 84.79 points, or 1.9%, to 4,397.94. The benchmark has now slipped for three straight weeks to start the year. It fell 5.7% this week, its worst weekly drop since March 2020, when the pandemic sent stocks into a bear market.
The Dow Jones industrial average fell 450.02 points, or 1.3%, to 34,265.37 on Friday; it also recorded its third consecutive week of losses.
The tech-heavy Nasdaq fell 385.10, or 2.7%, to 13,768.92. With investors expecting the Fed to start raising rates as soon as its March policy meeting, stocks of expensive technology companies and other expensive growth stocks looked relatively less attractive. The index has fallen for four straight weeks and is now more than 10% below its most recent high, putting it in what Wall Street considers a market correction. The Nasdaq is down 14.3% from the record set on Nov. 19.
Technology and communications stocks were among the market’s biggest drags on Friday. Video streaming service Netflix plunged 21.8% after posting another quarter of disappointing subscriber growth. Disney, which has also been trying to grow its subscriber base for its streaming service, fell 6.9%.
Treasury yields fell sharply as investors turned to safer investments. The 10-year Treasury yield fell to 1.76% from 1.83% on Thursday evening. The decline weighed on bank stocks, which rely on higher yields to charge more lucrative interest on loans. Wells Fargo fell 2.4% and Bank of New York Mellon 4.6%.
Inflation fears and worries about rising interest rates have caused a shift across the market after a solid year of gains in 2021. Tech stocks and consumer-focused companies have fallen out of favor. Energy is the only S&P 500 sector to post a gain; manufacturers of household goods and utilities, which are generally considered less risky investments, held up better than the rest of the market.
Supply chain issues and higher raw material costs have prompted companies in a wide variety of industries to raise prices for finished goods. Many of these companies have warned investors that their profit margins and operations will continue to feel the pinch in 2022.
Rising costs have raised fears that consumers will begin to cut back on spending due to continued pressure on their wallets. Government retail sales data for December showed an unexpected drop in spending.
The Fed is now expected to raise interest rates sooner and more often than previously announced to combat a spike in inflation that threatens to derail a fresh economic recovery. The Fed’s benchmark short-term interest rate is currently in a range of 0% to 0.25%. Investors now see a nearly 70% chance that the Fed will raise the rate by at least one percentage point by the end of the year, according to the CME Group’s Fed Watch tool.
“The market is working on digesting the magnitude of monetary policy changes that will occur during 2022,” said Bill Northey, chief investment officer at US Bank Wealth Management.
Investors will be watching Fed officials closely for their final policy meeting next week. Some economists worry that the central bank has been too slow to act to fight inflation. Consumer prices rose 7% in December from a year earlier, the biggest increase in nearly four decades.
“In our view, the biggest near-term risk is right in front of us: that the Fed is seriously behind the curve and has to seriously fight inflation,” wrote economists from BofA Global Research led by Ethan Harris in a report. “It’s been a long time since the markets had to deal with a serious inflation-fighting Fed.”
Investors have also been busy reviewing the latest round of corporate earnings, which could give them a better idea of how the companies are dealing with lingering supply chain issues and higher costs.
Paints and coatings maker PPG Industries fell 3.1% after warning investors that it continued to face high raw material costs and supply chain issues. Surgical device maker Intuitive Surgical fell 7.9% after warning that a focus on COVID-19 cases was causing delays in performing other procedures.
Peloton rose 11.7% after the exercise bike and treadmill maker said second-quarter revenue would meet previous estimates. The stock fell a day earlier after CNBC reported that Peloton was temporarily halting production of exercise equipment.