Another fall in stocks on Friday helped Wall Street post its first week of losses in six weeks.
The Standard & Poor’s 500 fell 33.56 points, or 0.8%, to 4,348.33, falling further from last week when it hit its highest level in more than a year. The Dow Jones industrial average fell 219.28 points, or 0.6%, to 33,727.43 and the Nasdaq Composite fell 138.09 points, or 1%, to 13,492.52.
Overseas markets also fell, while crude oil prices eased on concerns a tightening global economy could use less fuel.
According to a preliminary report measuring manufacturing and service companies, the European economy appears to be weaker than expected. This added to market reluctance this week, caused by central banks around the world raising interest rates as they try to bring high inflation under control. High interest rates lower inflation by slowing the economy, increasing the risk of a recession.
High interest rates in the United States have already plunged manufacturing and other industries into contraction while contributing to several collapses in the banking system that have shaken confidence. Federal Reserve Chairman Jerome H. Powell said this week that while his central bank didn’t hike rates last week, it could still push through a few more rate hikes before the end of this year.
Critics also said the US stock market needed a breather after rising too far and too fast after rallying more than 20% since mid-October. The S&P 500 just broke its longest weekly winning streak since November 2021.
Much of the exuberance came as the US economy managed to avoid a recession despite the Fed raising interest rates at a rapid pace since early 2022. The labor market in particular remained remarkably solid.
Wall Street had been hoping that a slowdown in inflation could prompt the Fed to ease interest rates, while a small group of stocks soared in the frenzy over artificial intelligence technology.
Most Wall Street traders still expect fewer rate hikes this year than the Fed is proposing. They may again be underestimating the Fed’s resolve, economist Ethan Harris wrote in a report by BofA Global Research.
“At the beginning of the rate hike cycle, the focus was on avoiding a recession,” he said. “However, with persistently high inflation, the focus has shifted from a tendency to do too little to do too much.”
According to a preliminary report on Friday, the overall US economy continues to grow even as output is contracting and production fell to a five-month low.
“The question remains how resilient service sector growth can be given the slowdown in manufacturing and the lagged impact of past rate hikes,” said Chris Williamson, chief economist at S&P Global Market Intelligence. “Of course, any further rate hike will have a further dampening effect on this sector, which is particularly vulnerable to changes in the cost of borrowing.”
A weaker economy could put pressure on energy demand, and the price of a barrel of US benchmark oil fell 35 cents to $69.16 after erasing earlier, more severe losses. Brent crude, the international standard, fell 29 cents to $73.85 a barrel.
Tech companies on Wall Street have been hit hard. Higher interest rates negatively impact all types of assets like stocks, bonds, and cryptocurrencies, but high-growth stocks are typically among the hardest hit.
A 1.4% decline for Microsoft and a 3% decline for Tesla were the two largest weights in the S&P 500. Nvidia, one of the biggest beneficiaries of the AI boom, fell 1.9% and was the third-largest weight in the index . It’s still up almost 189% year-to-date.
CarMax was on the stock exchange’s winning side on Friday. It rose 10.1% after the company reported earnings for the most recent quarter that were significantly higher than analysts had expected.
Coinbase surged 6.9% after winning a Supreme Court case. The crypto trading platform wanted to settle a dispute with a client in arbitration, a process many companies prefer to going to court.
In European equity markets, Germany’s DAX fell 1%, France’s CAC 40 fell 0.6% and London’s FTSE 100 lost 0.5%.
On Thursday, the Bank of England raised interest rates more-than-expected to a 15-year high. It was the 13th straight hike by the central bank. The central banks in Norway, Switzerland and Turkey also increased lending rates.
In Asia, Hong Kong’s Hang Seng Index lost 1.7%. Stocks there have fallen as China’s economic recovery stalled after easing anti-COVID restrictions.
Japan’s Nikkei 225 fell 1.5% after the higher-than-expected inflation rate. This fueled expectations that the central bank could adjust policies that have kept interest rates extremely low. The Bank of Japan has kept interest rates below zero to encourage more investment and spending.
In the bond market, yields fell as investors sought safer places to store cash amid economic concerns. The yield on the 10-year Treasury fell to 3.73% from 3.79% late Thursday. It helps set interest rates on mortgages and other major loans.
AP Authors Matt Ott and Elaine Kurtenbach contributed to this report.