Stocks tanked Friday — with the Dow tumbling nearly 1,000 points — as investors absorbed increasingly hawkish signals that the Federal Reserve would raise interest rates at a more aggressive clip.
Dow slides nearly 1,000 points for worst day since October 2020
It was the Dow’s worst day since October 2020, according to MarketWatch, bringing the blue-chip index 1.9 percent lower for the week. It’s down about 7 percent year to date.
The S&P 500 fell 2.8 percent this week and has shed 10.4 percent since the start of the year. Nasdaq slumped 3.8 percent this week and has lost 17.9 percent year to date.
Fed officials dampened market sentiments after signaling that the central bank could push through bigger interest rate hikes to bring inflation under control. Investors had already been planning for a series of 0.25 percent rate increases. Fed Chair Jerome H. Powell made clear a 0.5 percent increase is a distinct possibility, while St. Louis Fed chief James Bullard said 0.75 percent should not be ruled out.
“It is appropriate in my view to be moving a little more quickly” to raise interest rates, Powell told CNBC on Thursday. “I also think there is something to be said for front-end loading any accommodation one thinks is appropriate … I would say 50 basis points will be on the table for the May meeting.”
The potential of a more aggressive timeline appears to be the main driver behind the stock declines, analysts told The Washington Post, and is forcing investors to reevaluate their holdings. There also are concerns that the Fed could overcompensate in its efforts to tame inflation, increasing the likelihood of a recession.
“The Fed’s job is to raise rates enough to tame inflation, but not so much as to stop economic growth,” said Michael Farr of the Washington-based investment firm Farr, Miller and Washington. “The chances that they can get it exactly right are really low.”
Higher rates mean higher borrowing costs, which can put a damper on spending by both households and businesses. Mortgage rates, for example, have surged in recent weeks. The U.S. average on a 30-year fixed-rate loan hit 5.11 percent Thursday, according to Freddie Mac, compared with 2.14 percent a year ago.
Markets also are responding to a crush of corporate earnings. Verizon shares fell 6 percent after the company reported a drop in phone subscribers. Gap shares plunged nearly 19 percent after the clothing retailer slashed its sales outlook. Caterpillar stock dropped 6 percent.
Several large health care companies saw substantial drops linked to their earnings reports. HCA Healthcare, a public holding company that operates 185 hospitals, was down 22 percent after modifying its guidance.
“We’re still very early into earnings season, but higher costs are already denting profit margins and there doesn’t appear to be any material relief in sight,” said Brian Price, head of investment management for Commonwealth Financial Network.
Netflix, meanwhile, ended the week down 37 percent after disclosing it lost 200,000 accounts in the first quarter — it had projected a 2.5 million gain — and forecasting that it would lose another 2 million by the end of June. The unexpected drop in paying viewers stems from a steady slowdown in business owing to increased competition and the easing of pandemic restrictions that fueled growth by encouraging people to stay home.
International markets also suffered losses. The European Dax and Stoxx indexes fell 2.5 percent and 1.7 percent, respectively.
The yield on the 10-year U.S. Treasury note was roughly flat at 2.905 percent.
Oil prices have held steady over the past week, smoothing out some of the volatility that has rattled energy markets since Russia’s invasion of Ukraine. West Texas Intermediate crude, the U.S. benchmark, was down 1.4 percent to around $102 per barrel after hovering there for most of the past week. Brent crude, the global benchmark, was down 1.7 percent to $106 per barrel.
Source: WP
