Feb. 17 (Reuters) – Wall Street slumped on Friday, weighed down by Microsoft and Nvidia, as investors feared inflation and a strong US economy could set the Federal Reserve on pace for more rate hikes.
Major indices were on track to lose ground this week as economic data pointed to higher inflation, a tight labor market and resilient consumer spending, giving the Fed more room to raise borrowing costs.
Goldman Sachs and Bank of America forecast three more rate hikes this year, each one quarter of a percentage point higher than their previous estimate of two rate hikes.
Traders expect at least two more rate hikes and will see the Fed rate peak at 5.3% in July as the central bank attempts to cool the economy and reduce inflation.
“For the past two weeks, a dark cloud has drawn over the stock market based on a higher watermark for the Fed Funds rate,” said Jake Dollarhide, CEO of Longbow Asset Management in Tulsa, Oklahoma.
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“The job data is not weakening and it is difficult to go into recession with a strong labor market at the same time. That means the Fed can push the button and raise rates,” Dollarhide said.
Of the 11 S&P 500 sector indices, seven fell, led lower by energy (.SPNY), down 3.75%, followed by a 1.73% loss in information technology (.SPLRCT).
Microsoft Corp
The CBOE Volatility Index (.VIX), also known as Wall Street’s fear gauge, traded above 20 for the second consecutive session.
During afternoon trading, the S&P 500 fell 0.79% to 4,058.27 points.
The Nasdaq fell 1.24% to 11,708.36 points, while the Dow Jones Industrial Average fell 0.08% to 33,668.55 points.
The S&P 500 has gained about 6% so far in 2023, while the Nasdaq has recovered 12% after deep losses last year.
Adding to the gloom, Fed Governor Michelle Bowman said the central bank will have to keep raising interest rates until it makes much more progress in tackling inflation. Thomas Barkin, president of the Richmond Fed, said the central bank still needs to raise interest rates, but it can stick to quarter-point increases.
Moderna Inc (MRNA.O) fell 5% after its experimental messenger RNA-based flu vaccine produced mixed results in a study.
Deere & Co (DE.N) rose more than 8% after the world’s largest farm equipment maker increased its annual profit and beat quarterly profit expectations.
Lithium miners Livent Corp (LTHM.N), Albemarle Corp (ALB.N) and Piedmont Lithium Inc (PLL.O) all fell more than 10% on concerns about weak Chinese prices for the EV battery metal.
The US stock markets are closed on Monday in observance of Presidents’ Day.
In the US stock market (.AD.US), falling stocks outnumbered rising stocks by a ratio of 1.7 to one.
The S&P 500 recorded six new highs and one new low; the Nasdaq registered 55 new highs and 57 new lows.
Reporting by Johann M Cherian and Sruthi Shankar in Bengaluru; Edited by Marguerita Choy
Our Standards: The Thomson Reuters Principles of Trust.
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