Stocks tumble on Wall St after signs Fed plans aggressive tightening

Both the S&P 500 and the Dow lost 2.8 per cent on Friday amid worries about slowing corporate earnings and the US Federal Reserve’s rate-rise plans.

Trading on the floor of the New York Stock Exchange. Picture: Getty Images / AFP

Worries about slowing corporate earnings and the US Federal Reserve’s plans to rapidly raise interest rates dragged the Dow industrials to their worst day since 2020.

Friday’s declines, which deepened throughout the session, undid gains from earlier in the week, extending a slide for stock markets.

The broad-based S&P 500 fell at least 1 per cent for the third consecutive week, while the tech-focused Nasdaq Composite Index lost at least 2 per cent for a third straight week. Bond yields extended their gains, rising for three consecutive weeks.

On Friday, the Dow Jones Industrial Average posted its worst one-day percentage change since October 2020, losing 981.36 points, or 2.8 per cent, to close at 33811.40.

The S&P 500 dropped 121.88 points, or 2.8 per cent, to 4271.78, while the Nasdaq Composite fell 335.36 points, or 2.5 per cent, to finish at 12839.29.

In overseas markets, the pan-continental Stoxx Europe 600 closed down 1.8 per cent, dragged down by technology companies. Germany’s DAX index fell 2.5 per cent, while London’s FTSE 100 fell 1.4 per cent.

In Australia, the ASX 200 lost 1.57 per cent to close at 7473.3, below its 20-day moving average.

In Asia, Hong Kong’s Hang Seng lost 0.2 per cent and Japan’s Nikkei 225 fell 1.6 per cent. The Shanghai Composite, in contrast, bucked the trend, rising 0.2 per cent.

Investors this week parsed first-quarter financial results from a range of US businesses in search of clues about the health of the US economy, the consumer outlook and companies’ ability to cope with inflation.

Of the companies that have reported so far, about 80 per cent have beat analyst expectations, according to FactSet, which has helped provide some stability to the US stock market.

Downbeat reports from healthcare and retail stocks, among others, contributed to Friday’s losses.

“Usually when the economy’s slowing down, or there is a perception it’ll slow down, there are obvious sectors to hide in. Those traditional sectors aren’t as safe from an earnings basis as they are historically because they still are going to have negative impacts from inflation,” said Tavis McCourt, institutional equity strategist at Raymond James.

The recent rise in US government-bond yields showed signs of steadying, with the yield on the 10-year Treasury note ending on Friday at 2.905 per cent, down two of the past three trading days. Yields staged a climb earlier on Friday before reversing course. Bond yields rise when prices decline.

Some US stocks fell substantially on Friday after reporting results. Shares of HCA Healthcare dropped $US58.80, or 21.8 per cent, to $US210.64 after the hospital chain lowered its guidance for the year. The company said volume and revenue for the first quarter were offset by higher-than-expected inflationary pressures on labour costs.

Healthcare stocks are often considered defensive, with money managers betting that consumers will pay medical bills before making discretionary purchases. The S&P 500’s healthcare sector fell 3.6 per cent, its worst day since June 2020.

Concerns about inflation and the pace of monetary tightening by the Fed also remained at the forefront of investors’ minds this week. On Thursday, Fed chairman Jerome Powell gave investors a clear signal that the central bank is ready to tighten monetary policy more quickly and indicated that it was likely to raise interest rates by a half-percentage point at its meeting in May.

A rate increase next month, following the Fed’s quarter percentage point increase in March, would mark the first time since 2006 that the central bank increased its policy rate at back-to-back meetings.

Mr. Powell’s comments injected fresh volatility into a stock market that has been whipsawed this year by the war in Ukraine, soaring inflation and rising Covid-19 cases in China.

“The market is finally internalising and factoring in the reality that the Fed really means what it says and it’s not going to back down,” said Tim Courtney, chief investment officer of 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 are now worried that the Fed’s tightening cycle could tip the economy into a recession. In the coming week, investors will parse fresh figures from the University of Michigan on April consumer sentiment.

Shares of airlines held up better than the broader market. United Airlines Holdings added US61c, or 1.2 per cent, to close at $US51.46, while American Airlines Group slipped US4c, or 0.2 per cent, to $US20.18. On Thursday, American said its sales hit a record in March, the first month since the pandemic began in which the airline’s total revenue surpassed 2019 levels. United said it has been able to pass the rise in fuel prices on to consumers.

In commodities, Brent crude, the international benchmark for oil, fell $US1.68 a barrel, or 1.6 per cent, to $US106.65. It fell 4.5 per cent this week.

The Wall Street Journal Dollar Index, which tracks the US currency against a basket of others, rose 0.6 per cent, up for the past 15 out of 17 trading days. Bitcoin moved down 2.6 per cent from its Thursday evening to trade recently at $US39,596.93.

The Wall Street Journal