Stocks continued to sell off on Friday, capping a volatile week in U.S. markets as fears spread that U.S. interest rate hikes to fight inflation could dampen economic growth.
The Dow Jones Industrial Average fell 468 points, or 1.4%, to 32,529 in early trading, adding to. Other indexes also lost ground in Friday morning trading, with the S&P 500 losing 1.7% and the tech-heavy Nasdaq dropping 2.4%.
Investors worry whether the Federal Reserve, which raised its key rate by half a percentage point on Wednesday, can cool inflation without tipping the US economy. Traders were encouraged by Federal Reserve Chairman Jerome Powell’s comment that the Fed was not considering even bigger increases, but only briefly.
“Clearly, investors had their doubts about the Fed’s so-called ‘dovish’ hike,” ING’s Rob Carnell said in a report. The likelihood is that “rate hikes are coming quickly, but little or no prospect of a reversal in inflation any time soon.”
At the same time, the US economy remains strong on many fronts, including job growth. Employersin April, tied with growth in March, while the jobless rate remained unchanged at 3.6%, the Labor Department said on Friday.
But economists expressed cautious optimism about the report, noting that job growth could slow later this year, in part due to the Federal Reserve’s continued interest rate hike regime. The central bank’s plan is to raise rates to reduce business and consumer demand, which could spill over into the labor market later this year, they noted.
Jobs: Slowdown in sight?
Continuing the same pace of job growth “is going to become more difficult going forward for two reasons,” Morning Consult chief economist John Leer said in an email. “First, job growth tends to naturally slow over time toward the end of a strong economic recovery, which we’ve certainly seen over the past two years.”
He added: “Secondly, the actions taken this week by the Federal Reserve to raise interest rates will not begin to significantly affect job growth for a few months; that is how monetary policy works. .”
Job gains could decelerate to 262,000 per month in the third quarter and 201,000 per month in the fourth quarter, according to Moody’s forecast on Friday.
The two-year Treasury yield, which moves with Fed policy expectations, initially hit 2.77% earlier in the morning. But it then slipped to 2.66%, from 2.71% on Thursday evening.
“Rising yields on ‘safe’ assets will, in our view, keep equity valuations under pressure,” James Reilly, deputy economist at Capital Economics, said in a report. This is one of the main reasons why we think stocks will continue to struggle for some time to come.”
Capital Economics expects the S&P 500, which at the start of the afternoon was at 4,142 points, to rise from its current level to around 3,750 next year.
Russia’s war on Ukraine, high oil prices and global supply chain disruptions add to investor unease.
Also Thursday, the Bank of England raised its key rate to its highest level in 13 years, its fourth hike since December to calm British inflation which is at 30-year highs.
Oil prices remained above $100 a barrel despite major oil producers’ decision on Thursday to increase exports. European governments are considering an embargo on Russian oil and trying to line up other supplies in a tight market.