US stocks on Friday dropped as worsening inflation expectations kept intact worries that the US Federal Reserve’s aggressive rate hike path could trigger a recession, while investors digested the early stages of earnings season.
In the last session of a volatile week, equities opened higher, then reversed course after data from the University of Michigan showed that consumer sentiment improved this month, but inflation expectations worsened as gasoline prices moved higher. Retail sales data also indicated resilience among consumers.
“The main thrust for the market right now is higher interest rates, higher inflation and the Fed is going to continue to move its fed funds target higher,” said Anthony Saglimbene, chief market strategist at Ameriprise Financial Inc in Troy, Michigan. “The narrative that we’ve seen peak inflation is not evident yet and that’s depressing the market.”
On Thursday, a reading on the consumer prices index (CPI) showed that inflation remained stubbornly high.
Fed officials have been largely in sync when commenting on the need to raise rates and US Federal Reserve Bank of St Louis President President James Bullard said in an interview that the recent CPI data warrants a continued “frontloading” through larger three-quarter-percentage point steps, although that does not necessarily mean rates need to be raised above the central bank’s most recent projections.
The Dow Jones Industrial Average on Friday fell 403.89 points, or 1.34 percent, to 29,634.83, the S&P 500 lost 86.84 points, or 2.37 percent, to 3,583.07, and the NASDAQ Composite Index dropped 327.76 points, or 3.08 percent, to 10,321.39.
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Friday’s decline marked the 37th time the S&P 500 recorded a gain or loss of at least 2 percent compared with only seven such sessions in all of last year. For the week, the Dow gained 1.15 percent, the S&P 500 lost 1.56 percent and the NASDAQ fell 3.11 percent.
Corporate earnings season started to pick up steam and helped the bank index, which posted a narrow 0.03 percent gain after quarterly results from JPMorgan Chase & Co, up 1.66 percent, Citigroup Inc, up 0.65 percent, and Wells Fargo & Co, up 1.86 percent, boosted the shares of each.
“The message I got from them is things are looking pretty good from an economic perspective despite the challenges, but they increased loan-loss reserves just in anticipation that you are going to see some more slowing,” said Brian Jacobsen, senior investment strategist at Allspring Global Investments in Menomonee Falls, Wisconsin.
UnitedHealth gained 0.63 percent as one of only three Dow firms to move higher on the day after the health insurer posted better-than-expected quarterly results, while raising its annual forecast.
Analysts expect third-quarter profits for S&P 500 companies to rise just 3.6 percent from a year earlier, much lower than an 11.1 percent increase expected at the start of July, Refinitiv data showed.
Volume on US exchanges was 10.88 billion shares, compared with the 11.48 billion average for the full session over the past 20 trading days.
The S&P 500 posted five new 52-week highs and seven new lows; the NASDAQ Composite recorded 71 new highs and 235 new lows.
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