Interest rate worries sent stocks skidding through their worst week of the year

Another chilling reminder that inflation remains hotter than expected sent Wall Street skidding on Friday, and stocks closed for their worst week since early December.

The S&P 500 fell 1.1% to end its third straight weekly loss. the Dow The Jones Industrial Average fell as much as 510 points before closing up 336 points, or 1%, while the Nasdaq The composition lost 1.7%.

Stocks fell through February as a stream of reports showed everything from inflation to the job market to consumer spending remained hotter than expected. That has forced Wall Street to raise its forecasts of how high the Federal Reserve should take interest rates and how long it will keep them there.

Higher rates lower inflation, but they also increase the risk of a eCONOMY because they slow down the economy. They also hurt the prices of stocks and other investments.

The latest reminder came on Friday after a report indicated that the measure of inflation preferred by the swineherd came to be higher than expected. It says that prices are 4.7% higher in January than a year earlier, after ignoring costs for food and energy because they will be faster than others. That’s an acceleration from December’s inflation rate, which showed false momentum, and it’s higher than economists’ expectations of 4.3%.

It echoed other reports from earlier in the month that showed inflation at the consumer and wholesale levels was higher than expected in January.

Other data on Friday showed that consumer spending returned to growth in January, rising 1.8% from December. That’s important because consumer spending makes up the largest part of the economy. A separate sentiment reading among consumers came in stronger than first thought, while sales of new homes grew more than expected.

Such strength paired with a stronger job market has raised hopes that the economy will avoid a recession in the near term.

But it could also feed into upward inflation pressure, and Wall Street worries that it could push the Fed to raise rates even higher and keep them there even longer than it would otherwise.

“This puts the final nail in the coffin of the change we’ve seen in the last few weeks where the market has come to what the Fed has been saying for a while: rates are above 5% and there longer,” said Ross Mayfield , investment strategy analyst at Baird.

After initially doubting that the Fed would raise its key overnight rate as high as it said it would, and believing it could cut rates further later this year, traders increased rate bets. at the Fed which rose to at least 5.25% and remained high until the end of the year.

It is currently in a range of 4.50% to 4.75%, and it was close to zero a year ago.

High rates and inflation increase the risk of a recession down the line, even if the most important part of the economy is stable.

“The consumer is hanging in there, but the consensus seems to be there’s a lot of selling” among buyers of less expensive items, Mayfield said. “If you’re looking for a year and banking on the consumer sector to stay there, every additional month it becomes a dicier proposition.”

He expects economic growth to fall below its long-term trend if not fall into a minor recession, although he does not expect a worst-case scenario.

Expectations for a stronger Fed caused the yield of the Treasury market to shoot higher this month, and they increased further on Friday.

The yield on the 10-year Treasury rose to 3.94% from 3.89% late Thursday. It helps in setting rates for mortgages and other important loans. The two-year yield, which moved more than expectations for the Fed, rose to 4.79% from 4.71% and is near the highest level since 2007.

Tech and high-growth stocks once again took the brunt of the pressure. Investments that are seen as the most expensive, riskiest or make their investors wait the longest for big growth are among the most vulnerable to higher rates.

Microsoft, Apple Amazon and Tesla all fell by at least 1.8% and are the heaviest weights in the S&P 500 because their large size gives them more influence on the index.

Software company Autodesk fell to the index’s biggest loser, down 12.9% despite reporting stronger earnings and profits for the latest quarter than expected. Analysts said investors were disappointed by its predictions for future results.

Boeing lost 4.8% after it halted deliveries of its 787 passenger jet over questions about a supplier’s analysis of a part near the front of the plane.

All told, the S&P 500 fell 42.28 points to 3,970.04. The Dow fell 336.99 to 32,816.92, and the Nasdaq fell 195.46 to 11,394.94.

Overseas stock markets were also mostly down, with a 1.8% drop for France’s main index and a 1.7% fall in Hong Kong.

Japan’s Nikkei 225 was an outlier, rising 1.3%. The nominee to head the country’s central bank, economist Kazuo Ueda, said to the lawmakers he favors keeping Japan’s benchmark interest rate close to zero to ensure stable growth. That’s despite Japan reporting its core consumer price index, excluding perishable fresh foods, rose to a 41-year high in January.

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