Stocks tumbled on Wall Street Friday, leaving the S&P 500 with its biggest one-day loss in almost seven weeks, as worries deepen about a surge in interest rates and the U.S. central bank’s efforts to fight inflation.
The Dow fell 981.36 points, or 2.8%, to 33,811.40. The S&P 500 was 2.8% lower at 4,271.78, for its worst day since March. The Nasdaq Composite declined by 2.6% to 12,839.29. Friday’s loss was the biggest for the Dow since Oct. 28, 2020.
Those losses put the Dow down 1.9% for the week, its fourth straight weekly decline and its ninth losing week of the last 11. The S&P 500 posted a 2.8% weekly loss, marking its third straight one-week decline. The Nasdaq was the laggard this week, losing 3.8%.
A day earlier, Wall Street seemed set for healthy gains for the week after American Airlines, Tesla and other big companies reported strong profits or better forecasts for future earnings 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 buckled as the chair of the Federal Reserve indicated the central bank may indeed hike short-term interest rates by double the usual amount at 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 removes the tremendous aid thrown at the economy through the pandemic. It’s also preparing other moves to put upward pressure on longer-term rates.
By making it more expensive for businesses and households to borrow, 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, all while putting downward pressure on most kinds of investments.
Meanwhile, the latest earnings forecasts to jolt investors came from healthcare, with HCA Healthcare (HCA.N) and Intuitive Surgical Inc (ISRG.O) the worst performers on the S&P 500.
HCA slumped 21.8% after reporting a downbeat profit view, while other hospital operators felt the contagion: Tenet Healthcare (THC.N), Community Health Systems (CYH.N), and Universal Health Services (UHS.N)all tumbled between 14% and 17.9%.
All 11 major S&P 500 sectors were down, although the 3.6% slip by healthcare was outdone by materials, which was off 3.7%.
Materials (.SPLRCM) was weighed down by Nucor Corp (NUE.N) – down 8.3% after hitting a record high after posting earnings on Thursday – and Freeport-McMoRan Inc (FCX.N), which slipped 6.8% as investors fretted over how interest rate hikes would impact copper miners.
A preliminary report on Friday indicated the U.S. services industry’s growth is slowing, hurt in particular by surging costs for fuel, wages, and other expenses.
Treasury yields have soared as investors prepare for a more aggressive Fed, and stocks have often moved in the opposite direction of them. The yield on the 10-year Treasury slipped to 2.90% from 2.91% late Thursday but remains close to its highest level since 2018. It began the year at 1.51%.
The two-year Treasury yield, which moves more on expectations for Fed action on short-term rates, has zoomed even more. It was at 2.69% late Friday 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, particularly in Europe as the war in Ukraine pushes up oil, gas, and food costs.