The S&P 500 ended lower on Friday, weighed down by technology giants Microsoft and Nvidia, as investors fretted over the potential impact of inflation and a strong US economy on interest rate hikes by the Federal Reserve. Economic data released during the week had pointed to elevated inflation, a tight job market, and resilient consumer spending, prompting Goldman Sachs and Bank of America to predict three rate hikes of a quarter of a percentage point each this year. Traders, meanwhile, expect at least two more rate increases, with the Fed rate seen peaking at 5.3% by July as the central bank aims to cool the economy and reduce inflation.
Microsoft fell 1.6%, while Nvidia dipped 2.8%, both weighing on the S&P 500 as the yield on 10-year Treasury notes hit a three-month high. The CBOE Volatility index, also known as Wall Street’s fear gauge, traded above 20 points for the second consecutive session. Among the 11 S&P 500 sector indexes, six rose, led by consumer staples, up 1.29%, followed by a 1% gain in utilities. Energy fell 3.65%, with Exxon Mobil losing 3.8%.
The S&P 500 declined 0.28% to end the session at 4,079.09 points, while the Nasdaq fell 0.58% to 11,787.27 points. The Dow Jones Industrial Average rose 0.39% to 33,826.69 points. For the week, the S&P 500 fell 0.3%, the Dow lost 0.1%, and the Nasdaq climbed 0.6%. The S&P 500 has gained about 6% so far in 2023, while the Nasdaq has rebounded about 13% following deep losses last year.
Adding to the worries about monetary policy, Fed Governor Michelle Bowman said the central bank would need to keep raising interest rates until it makes much more progress tackling inflation. Richmond Fed President Thomas Barkin said the central bank still needs to raise interest rates, but that it could stick with quarter-point increases.
Moderna fell 3.3% after its experimental messenger RNA-based influenza vaccine delivered mixed results in a study. In contrast, Deere & Co surged 7.5% after the world’s largest farm equipment maker raised its annual profit and beat quarterly earnings expectations. Lithium miners Livent Corp, Albemarle Corp, and Piedmont Lithium slumped between 10% and 12% due to concerns about weakness in Chinese prices for the EV battery metal.
In summary, investors are worried that inflation and a robust US economy could push the Federal Reserve to implement more interest rate hikes, trigger a recession and another massive leg down in stocks.