Banks led a further pullback in stocks on Wall Street on Friday, as the market posted its third losing week in the past four.
The S&P 500 fell 1%, with three-quarters of the benchmark companies closing lower. The Dow Jones Industrial Average fell 1.5% and the tech-rich Nasdaq slipped 0.1%. The indices first rose in choppy trading before settling into their latest losses.
After pushing the S&P 500 to an all-time high last week, investors have pulled money off the table as the Federal Reserve prepares to slow stimulus and fight inflation.
The Federal Reserve signaled on Wednesday that it plans to step up its reduction in monthly bond purchases that have helped keep interest rates low. The policy change paves the way for the Fed to start raising rates next year.
“The cat is kind of out of the bag now and it looks like inflation is going to be something that is going to be more persistent into 2022,” said Charlie Ripley, senior investment strategist for Allianz Investment Management.
The S&P 500 lost 48.03 points to 4,620.64. The index is now about 2% below its all-time high last Friday and is up 23% so far this year. The Nasdaq lost 10.75 points to 15,169.68. Both indices have posted losses in three of the past four weeks.
The Dow Jones lost 532.20 points to 35,365.44.
Smaller company stocks held up to the general market decline. The Russell 2000 Index gained 21.48 points, or 1%, to 2,173.93.
Inflation has been a growing concern throughout 2021. Higher raw material costs and supply chain issues have increased overall costs for businesses, which have raised commodity prices to offset the impact. .
Consumers have so far absorbed these price increases, but they face persistent upward price pressure and this could eventually lead to lower spending. Any decline in spending could then dampen economic growth.
On Wednesday, investors initially welcomed the announcement of the Fed’s policy pivot towards fighting inflation. It was the only day of the week that the broader market saw any gains. Traders’ optimism appeared to fade again on Thursday with massive selling led by tech companies erasing nearly all of the market’s gains from a day earlier.
The decline in tech stocks continued on Friday. Oracle fell 6.4%, while Nvidia fell 2.1%.
Large tech companies often have high valuations based on assumptions about their long-term profitability. These valuations are generally more acceptable to investors when interest rates remain low, but become less desirable when interest rates rise.
Banks and energy companies suffered the heaviest losses, with long-term bond yields mostly falling. Lenders rely on higher returns to charge more lucrative interest on loans. JPMorgan Chase fell 2.3%.
The 10-year Treasury yield slipped to 1.41% from 1.42% Thursday night.
Losses were significant in all other sectors. A wide range of retailers, housewares manufacturers and industrial companies also fell. Home Depot slipped 2.9%, Procter & Gamble fell 2.3%, and Caterpillar fell 2.3%.
Sectors considered less risky, such as real estate and utilities, suffered less severe losses.
Some travel-related stocks, including cruise line operators, rose. Royal Caribbean grew 5.3%, Norwegian Cruise Line 5.1% and Carnival grew 4%.
The price of US crude oil fell 2.1% amid a general decline in energy futures. The S&P 500’s energy stocks mostly fell. Chevron slipped 2.6%.
Most of the European and Asian markets closed lower.
Wall Street is also assessing the potential impact of the surge in coronavirus cases with the new omicron variant. Public health experts in Europe have called for greater precautions amid the latest wave.
Investors also envision heightened tensions between China and the United States amid an already strained global supply chain. In the United States, Congress has approved legislation banning all imports from China’s Xinjiang region unless companies can prove they were produced without forced labor.