Wall Street dropped on Friday, weighed down by Microsoft and Nvidia as investors worried that inflation and a strong U.S. economy could put the Federal Reserve on pace for more interest rate hikes.
The main indexes were on track to lose ground for the week as economic data pointed to elevated inflation, a tight job market and resilience in consumer spending, giving the Fed more room for to raise borrowing costs.
Goldman Sachs and Bank of America forecast three more rate hikes this year and by a quarter of a percentage point each, up from their previous estimate of two rate rises.
Traders are expecting at least two more rate increases and see the Fed rate peaking at 5.3% by July as central bank attempts to cool the economy and reduce inflation.
“A dark cloud has drifted over the stock market in the last two weeks based on a higher watermark for the Fed funds rate,” said Jake Dollarhide, chief executive officer of Longbow Asset Management in Tulsa, Oklahoma.
“The jobs numbers aren’t getting weaker, and it’s hard to go into a recession with a strong labor market at the same time. That means the Fed could push the button and move rates higher,” Dollarhide said.
Of the 11 S&P 500 sector indexes, seven declined, led lower by energy, down 3.75%, followed by a 1.73% loss in information technology. Microsoft Corp, Nvidia and Amazon.com Inc lost more than 2% each and weighed heavily on the S&P 500 as the yield on 10-year Treasury notes hit a three-month high.
The CBOE Volatility index, also known as Wall Street’s fear gauge, traded above 20 points for a second session in a row.
In afternoon trading, the S&P 500 was down 0.79% at 4,058.27 points.
The Nasdaq declined 1.24% to 11,708.36 points, while the Dow Jones Industrial Average was down 0.08% at 33,668.55 points.
The S&P 500 has gained about 6% so far in 2023, while the Nasdaq has rebounded 12% following deep losses last year.
Adding to the gloom, Fed Governor Michelle Bowman said the central bank will need to keep raising interest rates until it makes much more progress tackling inflation. Richmond Fed President Thomas Barkin said the central bank still needs to raise interest rates, but that it could stick with quarter-point increases.
Moderna Inc fell 5% after its experimental messenger RNA-based influenza vaccine delivered mixed results in a study.
Deere & Co surged over 8% after the world’s largest farm equipment maker raised its annual profit and beat quarterly earnings expectations.
Lithium miners Livent Corp, Albemarle Corp and Piedmont Lithium Inc all fell more than 10% due to concerns about weakness in Chinese prices for the EV battery metal.
U.S. stock markets will be closed on Monday on account of Presidents’ Day.
Across the U.S. stock market, declining stocks outnumbered rising ones by a 1.7-to-one ratio.
The S&P 500 posted six new highs and one new low; the Nasdaq recorded 55 new highs and 57 new lows.
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