Worries over slowing corporate earnings and the Federal Reserve’s plans to raise interest rates quickly dragged Dow Jones industrialists into their worst day since 2020.
Friday’s declines, which deepened throughout the session, reversed the gains from the start of the week, extending the stock market slide. The broad-based S&P 500 fell at least 1% for the third straight week, while the technology-focused Nasdaq Composite Index lost at least 2% for a third straight week. Bond yields extended their gains, rising for three straight weeks.
Investors this week scoured the first-quarter financial results of a range of companies for clues about the health of the economy, consumer prospects and companies’ ability to weather inflation. Of the companies that have reported so far, about 80% have exceeded analysts’ expectations, according to FactSet, which has helped bring some stability to the U.S. stock market.
Bearish reports from healthcare and retail stocks, among others, contributed to Friday’s losses.
“Usually when the economy is slowing down, or there’s a perception that it’s going to slow down, there are obvious sectors to hide in. Those traditional sectors aren’t as immune to a base of earnings than they are historically because they are still going to have negative effects of inflation,” said Tavis McCourt, institutional equity strategist at Raymond James.
The Dow Jones Industrial Average posted its worst one-day percentage change since October 2020, losing 981.36 points, or 2.8%, to close at 33,811.40. The S&P 500 fell 121.88 points, or 2.8%, to 4,271.78, while the Nasdaq Composite fell 335.36 points, or 2.5%, to end at 12,839.29.
The recent rise in government bond yields has shown signs of stabilizing, with the yield on the 10-year Treasury ending Friday at 2.905%, down on two of the last three trading days. Yields soared earlier on Friday before reversing. Bond yields rise when prices fall.
Some stocks fell significantly on Friday after the earnings release. Shares of HCA Healthcare fell $58.80, or 21.8%, to $210.64 after the hospital chain lowered its forecast for the year. The company said first-quarter volume and revenue were offset by higher-than-expected inflationary pressures on labor costs.
Healthcare stocks are often viewed as defensive, with fund managers betting that consumers will pay medical bills before making discretionary purchases. The S&P 500 healthcare sector fell 3.6%, its worst day since June 2020.
Gap shares fell $2.57, or 18%, to $11.72 after the retailer cut its first-quarter fiscal forecast and announced the departure of the president and chief executive of its Old Navy business. This is the lowest close for the stock since July 2020.
Concerns about inflation and the pace of Fed monetary tightening also remained at the heart of investors’ concerns this week. On Thursday, Fed Chairman Jerome Powell made it clear to investors that the central bank was ready to tighten monetary policy more quickly and indicated that it would likely raise interest rates by half a percentage point. at its May meeting.
A rate hike next month, following the Fed’s quarter-point hike in March, would mark the first time since 2006 that the central bank has raised its key rate in back-to-back meetings.
Mr Powell’s comments injected new volatility into a stock market that has been whipped this year by war in Ukraine, soaring inflation and rising Covid-19 cases in China.
“The market is finally internalizing and pricing in that the Fed really means what it says and it won’t back down,” said Tim Courtney, chief investment officer at Exencial Wealth Advisors. “Somebody had a saying, and it’s pretty good: ‘You don’t fight the Fed when the Fed is fighting inflation.'”
Many traders now fear that the Fed’s tightening cycle could tip the economy into a recession. Next week, investors will analyze new figures from the University of Michigan on consumer sentiment for April.
““The market is finally internalizing and pricing in that the Fed really means what it says and it won’t back down.””
“I think what you’re seeing is consumers are becoming a lot more hesitant,” said Susannah Streeter, senior investment and market analyst at Hargreaves Lansdown. “It’s a delicate tightrope that central bank policymakers have to tread right now. They need to put a lid on this boiling pot of inflation, but they don’t want the steam to be completely driven out of the economy.
Airline stocks held up better than the broader market. United Airlines Holdings added 61 cents, or 1.2%, to close at $51.46, while American Airlines Group slid 4 cents, or 0.2%, to $20.18. On Thursday, American said its sales hit a record high in March, the first month since the start of the pandemic in which the airline’s total revenue exceeded 2019 levels. United said it was able to pass on rising fuel prices on consumers.
Shares of American Express fell $5.20, or 2.8%, to $180.54 after the credit card company reported net profit of $2.10 billion in the first quarter, against $2.24 billion a year earlier, even as travel and entertainment spending surged.
Kimberly-Clark jumped $10.41, or 8.1%, to $138.51 after maker of Huggies diapers and cottonelle toilet paper raised its sales growth projection for 2022 and said sales of the first quarter had increased compared to the previous year.
In commodities, Brent crude, the international benchmark for oil, fell $1.68 a barrel, or 1.6%, to $106.65. It fell 4.5% this week.
The Wall Street Journal’s dollar index, which tracks the currency against a basket of others, was up 0.6% in the past 15 out of 17 trading days. Bitcoin was down 2, 6% from its Thursday 5 p.m. ET level to recently trade at $39,596.93
In overseas markets, the pan-continental Stoxx Europe 600 index closed down 1.8%, led by technology companies. Germany’s DAX index fell 2.5%, while London’s FTSE 100 fell 1.4%.
In Asia, Hong Kong’s Hang Seng lost 0.2% and Japan’s Nikkei 225 fell 1.6%. The Shanghai Composite, on the other hand, bucked the trend, rising 0.2%.
Copyright ©2022 Dow Jones & Company, Inc. All rights reserved. 87990cbe856818d5eddac44c7b1cdeb8