Wall Street’s main indices reported their biggest weekly drop of the year after sharp losses on Friday, as investors braced for the possibility of more aggressive rate hikes from the US Federal Reserve due to US economic data pointing to resilient consumers.
For the blue-chip Dow Jones Industrial Average, the 2.99 percent fall was its biggest weekly decline since September last year. It was also the Dow’s fourth straight weekly decline, its longest losing streak in nearly 10 months.
The S&P 500 and NASDAQ Composite were also down 2.67 percent and 3.33 percent respectively.
After a strong month last month, stocks have retreated this month as a slew of economic data amplified worries that the US central bank might have to keep rates higher for longer.
The personal consumption expenditures price index, the Fed’s preferred inflation gauge, shot up 0.6 percent last month after gaining just 0.2 percent in December, data released on Friday showed.
Consumer spending, which accounts for more than two-thirds of US economic activity, jumped 1.8 percent last month, exceeding forecasts for a 1.3 percent increase.
Previous market cycles had witnessed similar delayed reactions by the market to rising interest rates and data releases, which helps explain volatile trading patterns as investors slowly adjust, Glenmede chief investment officer of private wealth Jason Pride said.
“This market has not yet realized the likelihood of a recession that we think is reality,” he said, adding that past rate hikes had normally taken between six and 18 months before their effects fully filtered through into the economy.
“We don’t think [a recession is] a given, but there’s a higher likelihood than the market has embedded in its thought process,” Pride said.
Traders of futures tied to the Fed’s policy rate added to bets of at least three more rate hikes this year, with the peak rate expected to be in the range of 5.25 to 5.5 percent by June.
The Fed should raise interest rates higher than necessary if need be to get inflation fully under control, Cleveland Fed President Loretta Mester said.
The Dow Jones Industrial Average fell 336.99 points, or 1.02 percent, to 32,816.92, the S&P 500 lost 42.28 points, or 1.05 percent, to 3,970.04 and the NASDAQ Composite dropped 195.46 points, or 1.69 percent, to 11,394.94.
Nine of the 11 major S&P sectors fell, with real estate, technology and consumer discretionary the biggest decliners. Communication services fell 1.4 percent, marking a sixth straight loss, its worst run since a similar six-session skid in August.
Megacap stocks including Tesla Inc, Amazon.com Inc and Nvidia Corp slid 1.6 to 2.6 percent as US Treasury yields rose.
The yield on two-year Treasury notes, which are highly sensitive to Fed policy, climbed to 4.826 percent — its highest in nearly four months.
Volume on US exchanges was 10.31 billion shares, compared with the 11.53 billion average for the full session over the past 20 trading days.
The S&P 500 posted two new 52-week highs and 11 new lows, while the NASDAQ Composite recorded 44 new highs and 162 new lows.
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