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US stocks fell with the Dow Jones Industrial Average on Friday to record its worst week since January, as the economic comeback led to the market sell-off after the Federal Reserve ramped up its rate-raising schedule.
The blue-chip average fell 450 points, bringing week-to-date losses to 3.3%. The S&P 500 fell 1%, pushing the loss to more than 1.5% this week. The tech-heavy Nasdaq Composite fell 0.6%.
Stocks extended their losses when St. Louis Fed President Jim Bullard said on CNBC that it was normal for the Fed to tilt a little “hawkish” this week and that the central bank’s first rate hike would likely come in 2022.
The market’s decline began after the Federal Reserve added two rate hikes to its 2023 forecast on Wednesday afternoon and raised its inflation projection for the year.
The market segments most sensitive to the economic recovery led to sell-offs this week. The S&P 500’s energy and industrials services sector are both down nearly 4% this week, while financials and materials are down more than 5%. These groups were market leaders this year as a result of the economic reopening.
The decline in stocks came as the Fed’s actions caused a drastic flattening of the so-called Treasury yield curve. This means that yields on short-term government bonds, such as the 2-year bond, have risen, while longer-term yields, such as the 10-year benchmark, have fallen. The decline in long-term bonds reflects less optimism about economic growth, while the rise in short-term yields reflects expectations of the Fed raising interest rates.
This phenomenon hurts bank stocks, especially since bank profits can take a hit as the difference between short-term and long-term interest rates narrows. Shares of Goldman Sachs fell more than 1% on Friday, while JPMorgan and Morgan Stanley fell 2% each.
Fed Chair Jerome Powell said on Wednesday that officials have been talking about phasing out bond buying and would at some point begin to slow asset purchases.
“Investors are interpreting the Fed’s aggressive stance on Wednesday as a sign that longer post-pandemic economic expansion in the US may be a little more difficult to achieve in a potentially emerging environment of less accommodative monetary policy,” Goldman Sachs’s Chris Hussey said in a statement. note. .
Most commodity prices recovered somewhat on Friday after sharp declines this week as China tries to cool rising prices and the US dollar strengthens. Copper, gold and platinum futures prices recovered Friday, but were still sharply down for the week.
Chip stocks, having had a good week, appeared poised to continue their run on Friday, with shares of Nvidia up about 1%.
Adobe shares gained about 3% after revenues and earnings exceeded estimates.
Friday also coincides with the quarterly “quadruple witching” where options and futures on indexes and stocks expire. Many expect trading to be more volatile in light of this event.
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