U.S. stock indexes slipped on Friday on weakness in megcap and energy stocks as investors worried that stubborn inflation and signs of strength in the U.S. economy could put the Federal Reserve on pace for more interest rate hikes this year.
Wall Street indexes turned volatile this week following a strong start to 2023 as economic data pointed to elevated inflation, a tight job market and resilience in consumer spending, giving the Fed more room for to raise borrowing costs.
Goldman Sachs and Bank of America forecast three more times rate hikes this year and by a quarter of a percentage point each, up from their previous estimate of two rate rises. Traders are expecting at least two more rate increases and see the Fed rate peaking at 5.3% by July.
“We’ve seen the rates market catch up to the Fed commentary, and the really robust data in the U.S. was the catalyst for equities to pay attention,” said Laura Cooper, senior macro strategist at BlackRock.
“We’re reaching an inflection point where further rate hikes being priced in will be a negative for equity markets because the data suggests that inflation risks are tilted to the upside.”
Seven of the 11 major S&P sectors were lower, with energy stocks sliding 3.0% as oil prices tumbled 3%.
Megacap growth names like Microsoft Corp, Apple Inc and Amazon.com Inc lost more than 1% each, weighing on the technology and consumer discretionary sectors.
Meanwhile, Fed Governor Michelle Bowman said interest rates will have to rise until there was more progress on bringing high inflation back towards the 2% goal, adding to a string of recent hawkish comments from policymakers.
The CBOE Volatility index, also known as Wall Street’s fear gauge, traded above 20 points for a second session in a row.
At 10:44 a.m. ET, the Dow Jones Industrial Average was down 24.96 points, or 0.07%, at 33,671.89, the S&P 500 was down 28.80 points, or 0.70%, at 4,061.61, and the Nasdaq Composite was down 116.57 points, or 0.98%, at 11,739.27.
Sectors considered less risky during times of economic uncertainty such as healthcare, consumer staple and utilities gained.
Moderna Inc fell 4.7% after its experimental messenger RNA-based influenza vaccine delivered mixed results in a study.
Deere & Co jumped 6.4% after the world’s largest farm equipment maker raised its annual profit and beat quarterly earnings expectations.
Declining issues outnumbered advancers for a 1.85-to-1 ratio on the NYSE and 1.37-to-1 ratio on the Nasdaq.
The S&P index recorded five new 52-week highs and one new low, while the Nasdaq recorded 44 new highs and 39 new lows.