U.S. stocks traded lower on Friday, on track to fall for the third time in the last four days, as a spate of hot economic data and commentary from Federal Reserve officials spurred expectations for higher interest rates.
What’s happening
Dow Jones Industrial Average
DJIA,
-0.16%
fell 79 points, or 0.2%, to 33,615.
S&P 500
SPX,
-0.81%
dropped 33 points, or 0.8%, to 4,056.
Nasdaq Composite
COMP,
-1.22%
decreased by 140 points, or 1.2%, to 11,715.
On Thursday, the Dow Jones Industrial Average fell 431 points, or 1.26%, to 33697, its biggest point and percentage-point decline since Jan. 18. The blue-chip gauge is on track to log its third-straight weekly drop — what would be the longest such streak since September.
The S&P 500 is on track to log back-to-back weekly declines for the first time this year.
What’s driving markets
After the S&P 500 index saw a five month high in early February, U.S. stocks have continued to slide this week as hotter-than-expected economic data spurred expectations that the Fed could raise its policy rate well above 5% and keep it there until at least early 2024.
Markets stumbled after the release of the producer-price index for January on Thursday, which showed wholesale prices accelerated by 0.7% last month, the sharpest increase since the summer. Stocks were also weighed down by comments by two regional Fed presidents who said they would push for a 50 basis point hike in March.
Recent economic data have pointed to surprising strength in the services sector, as well as the labor market and U.S. consumer. Investors now appear to be taking the Fed’s guidance more seriously as some see a “no landing” scenario for the economy as more likely.
Stephen Guilfoyle, president of family office Sarge986 and a former floor trader on the New York Stock Exchange, said the latest bout of aggressive Fed rhetoric isn’t surprising as central bankers react to the fact that some of the most speculative equity names have led this year’s equity rally.
“They were no longer just fighting the Fed, they were taunting the Fed. They were provoking the hawks like Bullard and Mester,” Guilfoyle told MarketWatch during a phone interview.
Technology stocks have continued to outperform though with the Nasdaq likely the only major U.S. index on track to finish the week higher. It’s up nearly 12% year to date, compared with a 5.6% rise in the S&P 500.
As markets have priced in expectations for interest rate rises from the Fed in May and June, economists at Bank of America and Goldman Sachs have adjusted their forecasts to call for additional 25 basis-point hikes in March, May and June. Market-based odds of a rise in the Fed’s benchmark rate in June have risen substantially this week.
See: Why traders suddenly see significant chance of a June interest rate hike by the Fed
The odds of a rise in the fed funds rate in June were seen as negligible as recently as earlier this month, according to trading in Fed funds futures. An additional hike in June would bring the Fed’s terminal rate to a range of between 5.25% and 5.5%.
Treasury yields and the dollar have advanced this week while gold futures
GCJ23,
-0.22%
expiring in April touched their weakest level of the year on Friday.
The yield on the 10-year Treasury note
TMUBMUSD10Y,
3.842%
rose 4.6 basis points to 3.882%, while the ICE U.S. Dollar Index
DXY,
+0.20%,
a gauge of the dollar’s strength against a basket of rivals, rose 0.5% to 104.38.
The U.S. economic calendar for Friday featured commentary by two more Fed officials, including Richmond Fed President Tom Barkin, who said that the labor shortages plaguing the U.S. economy are likely to persist. Fed Gov. Michelle Bowman also spoke at 8:45 a.m. Eastern Time.
U.S. stocks will be closed on Monday in observance of Washington’s Birthday on Monday.
Companies in focus
Deere
DE,
+6.41%
bounced after the maker of agriculture, construction and forestry equipment reported fiscal first-quarter profit and revenue that beat expectations by wide margins, with all segments seeing both higher shipment volumes and higher pricing.
DoorDash
DASH,
-6.94%
fell after the food delivery merchant reported a much wider fourth-quarter net loss than expected, though the company beat most other Wall Street estimates, including for revenue, orders and its first-quarter forecast.
AMC Networks Inc.
AMC,
+2.38%
shot higher after the TV network and streaming services company reported a fourth-quarter profit that was more than double what was expected.
AutoNation Inc.
AN,
+8.87%
rose after the automotive retailer easily topped profit expectations or its latest quarter while benefiting from higher sales of and prices for new vehicles.
DraftKings
DKNG,
+15.38%
stock jumped after the sports betting firm cleared $800 million in revenue in the fourth quarter, a new record just one quarter after topping $500 million for the first time, as the online-gambling company’s move into new states continues to boost sales.
