NEW YORK (AP) — Wall Street closed its first losing week in the past four with Friday up and down as investors brace for the Federal Reserve to tighten the brakes on the economy more aggressively to fight inflation.
Big tech stocks again led the market lower and the S&P 500 fell 11.93 points, or 0.3%, to 4,488.28 after lurching for much of the day. The Dow Jones Industrial Average rose 137.55, or 0.4%, to 34,721.12. Weakness in tech stocks, meanwhile, dragged the Nasdaq composite down 186.30, or 1.3%, to 13,711.00.
For the week, the S&P 500 lost 1.3%. Stocks fell as the Federal Reserve shifts more aggressively to fighting inflation by raising short-term interest rates and taking other measures. It’s a sharp turnaround from keeping rates at record highs to stimulate the economy and get it through the pandemic.
Investors learned this week that the Fed could raise short-term rates by double the usual amount in several upcoming meetings, and it came close to doing so last month. The last time this happened was in 2000. The Fed also indicated in the minutes of its last meeting that it would likely reduce its massive stockpile of bonds by up to $95 billion a month. , starting next month.
Taken together, these measures should make borrowing more expensive for American households and businesses, which in turn would slow the economy and hopefully halt the highest inflation in 40 years.
Higher rates hurt all types of investments, especially stocks considered the most expensive. This is because higher rates mean better returns for owning relatively safe bonds, making investors less willing to pay higher prices for riskier assets like stocks.
That’s why big tech and other high-growth stocks have dragged the market lower recently. Amazon, Nvidia and Tesla were among the heaviest hitters in the S&P 500 on Friday, and each fell at least 2%.
Concerns are also growing about the strength of the economy. As the Federal Reserve prepares to raise rates so aggressively, the fear is that it will apply the brakes too hard or too quickly and push the economy into a recession. Although that’s not the consensus on Wall Street, economists at Deutsche Bank said earlier this week that they forecast a U.S. recession by the end of next year.
The war in Ukraine has made things more uncertain by threatening to worsen inflation and damage the global economy. Oil, gas and food prices have been particularly volatile since Russia invaded the country.
Benchmark U.S. crude rose $2.23 a barrel to settle at $98.26 on Friday. It has swung wildly in recent weeks and briefly topped $130 last month. Brent crude, the international standard, added $2.20 to settle at $102.78 a barrel.
Much of the market’s attention has been on the bond market, where expectations of a more aggressive Fed propelled yields to their highest levels in three years. The 10-year yield climbed to 2.71% from 2.65% Thursday night. It was only 1.51% at the start of the year.
It could rise further as the Fed not only halts but cancels its program to buy billions of dollars of bonds.
Buying bonds has helped prices of stocks and other financial assets soar and markets stay relatively calm, wrote chief investment strategist Michael Hartnett in a recent BofA Global Research report.
Now the Fed is less than a month away from reversing that, which “by design will be negative” for financial assets, Hartnett said. He said this should lead to higher bond yields and higher volatility in the markets.
Meanwhile, COVID-19 continues to weigh on the economy around the world, especially in China. People in Shanghai are facing severe restrictions on movement and activities due to a surge in infections, with economic effects reverberating around the world.
ACM Research, an equipment supplier for the semiconductor industry that operates in Shanghai, said the restrictions would significantly affect its revenue. Its stock fell 6.1%.
A rise in COVID-19 cases is also behind airline disruptions in Europe. Two major airlines, British Airways and easyJet, canceled around 100 flights on Wednesday. The industry is suffering from a staff shortage due to the virus.
AP Business Writer Yuri Kageyama contributed.
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