Shares slid on Friday, with the S&P 500 heading for its third consecutive weekly decline, a decline that came as Wall Street quickly changed its expectations of how aggressively the Federal Reserve will raise interest rates.
The S&P 500 fell 2.2% in afternoon trading, a loss that would have been the worst daily dip since early March. The high-tech Nasdaq composite also fell more than 2%.
Friday’s sales added to a decline that began the day before, after Fed Chairman Jerome H. Powell sealed expectations that the central bank would raise interest rates by half a percentage point when it meets next month. . said Mr. Powell such an increase “will be on the table for the May meeting,” as he reiterated the view that persistently high inflation meant the Fed had to move quickly to raise financial costs and cool the economy.
The central bank raised interest rates by a quarter of a percentage point in March, after keeping them close to zero since March 2020, but investors in equities have faced the prospect of higher interest rates since the beginning of the year. year, rethinking their appetite for risky assets, such as stocks, as well as their economic growth forecasts.
But recent comments from Fed officials, including Mr. Powell, have fueled expectations that interest rates will rise much faster than previously thought even a few weeks ago. Traders in futures markets currently expect the Fed will raise its benchmark rate to 2% in July, a forecast that would require the central bank to raise rates by half a percentage point in each of its next three meetings. A month ago, the odds that rates would have been at 2% in July were zero.
The expectation is also evident in the bond market, where government bond yields have risen this year. The yield on 10-year US Treasuries, a benchmark for borrowing costs across the economy, is up to 2.91%, a sharp rise from 1.51% at the start of the year.
The odds of an aggressive rate move have increased following Powell’s comments yesterday, but have also increased compared to what other officials have argued for a quicker approach to cooling inflation. In early April, Details of the Fed’s March meeting showed that central bankers were preparing to raise interest rates “quickly”.
The change is a “major adjustment” for investors and carries the risk that the Fed will go too far in slowing the economy, potentially triggering a recession, Louis Navellier, the founder of money manager Navellier & Associates, wrote in a statement.
“While fighting inflation is in everyone’s best long-term interest, there is a healthy skepticism that the Fed and other central banks could thread the needle for a soft landing,” he wrote.
Mixed reactions to corporate earnings reports from several companies also triggered a downturn in the stock market on Friday.
HCA Healthcare fell 18%, making it one of the worst performers in the S&P 500, after the company cut its forecast between higher labor costs. Universal Health Services fell 12%, while Intuitive Surgical fell nearly 14%.
Verizon was down about 5.8% after the company said it 36,000 telephone subscribers lost in the first three months of the year.