U.S. stocks ended mixed Friday, with the technology-laden Nasdaq Composite and S&P 500 closing lower, as investors continued to digest the Federal Reserve’s plans to aggressively raise interest rates and shrink its balance sheet. Key inflation data and corporate earnings reports loom next week.
How did stock indexes perform?
- The Dow Jones Industrial Average DJIA, +0.40% rose 137.55 points, or 0.4%, to close at 34,721.12.
- The S&P 500 SPX, -0.27% slipped 11.93 points, or 0.3%, to finish at 4,488.28.
- The Nasdaq Composite COMP, -1.34% shed 186.30 points, or 1.3%, to end at 13,711.
For the week, the Dow declined 0.3%, the S&P 500 fell 1.3% and the Nasdaq dropped 3.9%. The S&P 500 and Nasdaq each snapped a three-week winning streak while the Dow fell for a second week in a row, according to Dow Jones Market Data.
What drove the markets?
Major U.S. stock benchmarks mostly fell, with the S&P 500 index ending lower after struggling for direction earlier in the session, as investors continued to digest expectations for the Federal Reserve to become more aggressive combating high inflation.
Six to 9 months ago the Federal Reserve didn’t seem too worried about inflation becoming a problem, said Bob Doll, chief investment officer at Crossmark Global Investments, in a phone interview Friday. “Now they’re tripping all over themselves to see who can be more hawkish,” he said of Fed officials.
Earlier this week, Fed Gov. Lael Brainard gave a hawkish speech indicating the central bank’s monetary tightening may include interest rates hikes plus a rapid pace of balance sheet reductions that could begin as soon as May. Wednesday’s release of the minutes of the last Federal Open Market Committee meeting set the stage for a likely $95 billion per month reduction in the central bank’s balance sheet while reaffirming prospects of multiple, half-point increases in interest rates in future policy meetings.
“Just because the Fed starts raising rates doesn’t mean that immediately the economy is going into the tank,” said Doll. He said he expects economic growth will be “OK” this year, even as it slows from 2021, and that inflation, which is running at a 40-year high, may peak around mid-2022.
With hot inflation, rising rates and the Russian-Ukraine war weighing on investor sentiment, “the market has hung in there well despite all that,” said Doll.
Technology and other growth stocks, which are most sensitive to interest rates, were under renewed pressure Friday as Treasury yields continued to rise, dragging down the Nasdaq.
“The Nasdaq has longer duration equities than the S&P 500,” meaning companies in the tech-heavy Nasdaq Composite tend to have potential earnings further out in the future as opposed to producing profits now, Doll said. That makes them more vulnerable to rising interest rates, he said, pointing to the yield on the 10-year Treasury note jumping more than 30 basis points this week.
The yield on the 10-year Tresasury note BX:TMUBMUSD10Y rose 5.9 basis points Friday to 2.713%, the highest since March 5, 2019 based on 3 p.m. Eastern Time levels, according to Dow Jones Market Data. The 10-year yield climbed 33.9 basis points this week and has risen in four of the past five weeks.
“With rates going up, the Nasdaq is going to be a bit difficult,” William Huston, chief investment officer at Bay Street Capital Holdings in Palo Alto, Calif., said in a phone interview Friday. Huston said that he made some portfolio changes early this year in anticipation of rising interest rates, reducing exposure to companies tracked by the Nasdaq-100 index while adding the SPDR S&P Bank ETF KBE, +0.08% and the ProShares S&P 500 Dividend Aristocrats ETF NOBL, +0.28%.
Shares of Invesco QQQ Trust QQQ, -1.40%, which tracks the Nasdaq-100 index, fell 1.4% Friday, increasing losses for the year to around 12%, according to FactSet data. Also, information technology was the worst performing of the S&P 500’s 11 sectors this week, dropping about 4%, FactSet data show.
Meanwhile, analysts said stocks have been underpinned by expectations for a strong first-quarter earnings reporting season, which kicks off in earnest next week when big banks report results.
“While we see Q1 earnings living up to market expectations, we think investors have been betting on good earnings as the market has rebounded from the uncertainty factors,” said Peter Cardillo, chief market economist at Spartan Capital Securities, in a note.
While stock indexes are unlikely to return to February lows, “we see a stagnant trading range as the Fed becomes more aggressive in fighting inflation,” he wrote. “In other words, carefully chosen individual stocks will likely beat the averages as a whole.”
With the March consumer-price index report due next week, the discussion on Fed policy will continue to dominate market sentiment, analysts said.
Which companies were in focus?
- Tesla Inc. TSLA, -3.00% chief Elon Musk Thursday night committed to 2023 deliveries of the Cybertruck pickup and Tesla Semi during an event at the company’s Texas “gigafactory,” reports said. Shares closed 3% lower.
- Shares of WD-40 Co. WDFC, +7.09% climbed 7.1% after the maintenance and cleaning products company posted a big earnings beat and forecast rising inflation would have only a small effect on the year’s profit.
- Biogen Inc. BIIB, +1.47% shares gained 1.5% after the Centers for Medicare and Medicaid Services, which oversees the Medicare program, said late Thursday they had completed their policies about covering the biotech’s controversial Alzheimer’s drug Aduhelm and future others.
How did other assets fare?
- The ICE U.S. Dollar Index DXY, +0.09%, a measure of the currency against a basket of six major rivals, was up 0.1% Friday for a weekly rise of 1.2% after earlier this week hitting its highest level since May 2020.
- Bitcoin BTCUSD, -0.06% was down 2.3% at $42,590.
- In oil futures, West Texas Intermediate crude for May delivery rose 2.3% to settle at $98.26 a barrel on Friday. But oil prices measured by the U.S. benchmark fell 1.2% for the week for a second straight weekly decline.
- Gold for June delivery GCM22, +0.65% rose 0.4% to end at $1,945.60 an ounce on Friday for a weekly gain of 1.1%.
- In European equities, the Stoxx Europe 600 SXXP, +1.31% closed 1.3% higher Friday and rose 0.6% this week. London’s FTSE 100 UKX, +1.56% gained 1.6% Friday for a weekly advance of 1.7%.
- Asian stocks ended modestly higher Friday but booked weekly declines. The Shanghai Composite SHCOMP, +0.47% closed up 0.5% and saw a weekly drop of 0.9%, while the Hang Seng Index HSI, +0.29% rose 0.3% in Hong Kong on Friday and fell 0.8% for the week. Japan’s Nikkei 225 NIK, +0.36% closed 0.4% higher Friday but remained down 2.5% for the week.
––Steve Goldstein contributed to this article.