Shares stumble 2.8% on Friday as interest rate concerns escalate | Business
NEW YORK — Stocks tumbled on Wall Street on Friday, leaving the S&P 500 with its biggest one-day loss in nearly seven weeks, as concerns mount over soaring interest rates and efforts to the US central bank to fight inflation. The S&P 500 fell 2.8% and marked its third consecutive losing week. Several disappointing corporate earnings reports also rattled what had been the market’s main support. A day earlier, the Federal Reserve Chairman indicated that the Fed was likely to act aggressively to contain inflation with larger interest rate hikes, starting with its next policy meeting in two weeks.
THIS IS A BREAKING NEWS UPDATE. AP’s previous story follows below.
NEW YORK — Stocks tumble on Friday as the recent spike in interest rates continues to weigh on Wall Street. Some disappointing corporate earnings reports also rattled what had been the market’s main support.
The S&P 500 was down 2.4% in afternoon trade and on track to close a third consecutive week of losses. The Dow Jones Industrial Average was down 811 points, or 2.3%, at 33,985 as of 3:13 p.m. EST, and the Nasdaq composite was down 2.2%.
A day earlier, Wall Street appeared poised for healthy gains for the week after American Airlines, Tesla and other big companies reported strong earnings or better future earnings forecasts than analysts expected. . Such corporate optimism has helped stocks remain relatively resilient, even as worries swirl about the highest inflation in decades, the war in Ukraine and the coronavirus.
But markets caved when the Federal Reserve Chairman indicated that the central bank could indeed raise short-term interest rates by double the usual amount in upcoming meetings, starting in two weeks.
The Fed has already raised its key overnight rate once, the first such increase since 2018, as it aggressively cuts the huge aid provided to the economy during the pandemic. He is also preparing other measures to put upward pressure on longer-term rates.
By making borrowing more expensive for businesses and households, the higher rates are meant to slow the economy, which should hopefully halt the worst inflation in generations. But they can also trigger a recession, while putting downward pressure on most types of investments.
“After years of being very dovish, the Fed has made it clear that policy is going to be tougher for the foreseeable future,” said Brian Price, head of investment management for Commonwealth Financial Network. “Their hawkish stance gives investors pause as many need to assess the impact on profit margins and (stock) multiples going forward.”
A preliminary report on Friday said growth in the U.S. services industry was slowing, particularly due to soaring fuel costs, wages and other expenses.
Treasury yields have soared as investors brace for a more aggressive Fed, and stocks have often moved in the opposite direction. The 10-year Treasury yield is at 2.90%, up from 2.91% on Thursday night, but still close to its highest level since 2018. It started the year at 1.51%.
The two-year Treasury yield, which moves more in line with expectations of Fed action on short-term rates, rose further. It is at 2.72% after more than tripling from 0.73% at the start of the year.
Markets around the world are feeling similar pressure on rates and inflation, especially in Europe as the war in Ukraine drives up oil, gas and food prices.
The German DAX lost 2.5% on Friday, while the French CAC 40 fell 2%. The FTSE 100 in London fell 1.4%.
Beyond developments in Ukraine, a run-off presidential election in France this weekend could also swing markets.
In Asia, Japan’s Nikkei 225 fell 1.6% and South Korea’s Kospi lost 0.9%. Shares in Shanghai rose 0.2% after authorities promised to ease virus checks on truck drivers who obstruct food supply and trade.
On Wall Street, most stocks were falling, with health care companies among the largest weights.
HCA Healthcare fell 22% after reporting weaker earnings per share for the last quarter than analysts expected. The hospital operator also cut its revenue and profit forecasts this year.
Verizon Communications slid 5.3% after saying it expected earnings for the year to be in the lower end of the range it had previously forecast. The company also reported slightly weaker than expected revenue for the first three months of the year.
Retailer Gap fell 19.6% after it cut its sales forecast for the current fiscal quarter and said the CEO of its Old Navy business would leave the company.
The company’s disappointing results and outlook, along with Powell’s remarks on Thursday, heightened concerns among investors who are already trying to navigate economic uncertainty amid ongoing global supply chain issues, the pandemic and the war in Ukraine,” said Greg Bassuk, CEO of AXS Investments.
“Looking ahead, it puts a bitter taste in investors’ mouths about the likelihood of stronger corporate earnings for the remainder of 2022,” he said.
The general trend on Wall Street, however, has recently been more optimistic. The majority of companies have exceeded analysts’ expectations so far this earnings season, around a fifth of the way.
Kimberly-Clark, the maker whose brands include Huggies and Kleenex diapers, soared 8.5% for one of the biggest gains in the S&P 500 after reporting higher earnings and revenue for the last quarter than the analysts had predicted.
SVB Financial Group jumped 8.8% after also reporting higher-than-expected earnings per share. Silicon Valley Bank’s parent company raised its revenue forecast this year, in part due to rising interest rates and strong demand for loans from tech and other customers.