Stocks fall, have worst week since March 2020; Netflix tanks

The S&P 500 fell 84.79 points or 1.9% to 4,397.94. The benchmark index has now fallen for three weeks in a row to start the year. It fell 5.7% this week, the 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 and also fell for the third week in a row.

The tech-heavy Nasdaq fell 385.10 or 2.7% to 13,768.92. With investors expecting the Fed to start raising rates once the March policy meeting took place, stocks in expensive tech companies and other expensive growth stocks looked relatively less attractive. The index has fallen for four weeks in a row and is now more than 10% below its most recent high, which Wall Street sees as a market correction. The Nasdaq is down 14.3% from its November 19 record high.

As always, once volatility kicks in, investors pile up to exacerbate downside volatility, said Nancy Tengler, CEO of Laffer Tengler Investments.

Technology and communications stocks were among the biggest barriers in the market Friday. Streaming video service Netflix plunged 21.8% after delivering another quarter of disappointing subscriber growth. Disney, which is also trying to increase the number of subscribers for its streaming service, fell 6.9%.

Treasury bond yields fell sharply as investors turned to safer investments. The 10-year Treasury yield fell to 1.76% from 1.83% at the end of Thursday. 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 fell 4.6%.

Inflation fears and concerns about the impact of higher interest rates have led to a shift in the broader market after a solid year of gains in 2021. Technology stocks and consumer-oriented companies have fallen out of favor. Energy is the only S&P 500 sector to show gains; Household goods and utilities manufacturers, which are generally considered less risky investments, outperformed the rest of the market.

Supply chain problems and higher raw material costs have prompted companies in a wide variety of industries to increase the prices of finished goods. Many of those companies have warned investors that their profit margins and operations will continue to feel the pinch in 2022.

Rising costs have raised concerns that consumers may be spending less 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 earlier and more frequently than previously indicated to combat rising inflation that threatens to derail further economic recovery. The Fed’s short-term benchmark is currently between 0% and 0.25%. Investors now see a nearly 70% chance that the Fed will raise interest rates by at least one percentage point before the end of the year, according to CME Groups’ Fed Watch tool.

According to Bill Northey, senior investment director at US Bank Wealth Management, the market is processing the changes in monetary policy that will take place over the course of 2022.

Investors will be watching closely when Fed officials meet next week for their final policy meeting. Some economists are concerned that the central bank has acted too slowly to fight inflation. Consumer prices rose 7% in December from a year earlier, the largest 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 times and needs to get serious about fighting inflation, economists at BofA Global Research led by Ethan Harris wrote in a report. It’s been a long time since the markets have had a serious inflation-fighting Fed.

Investors have also been busy assessing the latest round of corporate earnings, which could give them a better idea of ​​how companies are coping with ongoing supply chain problems and increased costs.

Paint and coatings maker PPG Industries fell 3.1% after warning investors it still faces high raw material costs and supply chain problems. Surgical device manufacturer Intuitive Surgical fell 7.9% after warning that focus on COVID-19 cases is causing delays in performing other procedures.

Peloton rose 11.7% after the exercise bike and treadmill maker said fiscal revenue for the second quarter would meet earlier estimates. The stock plunged a day earlier after CNBC reported that Peloton temporarily halted production of fitness equipment to counter a decline in sales.