By David French
(Reuters) – Wall Street’s main indexes posted their biggest weekly decline of 2023 after sharp losses on Friday, as investors braced for the possibility of more aggressive rate hikes from the US Federal Reserve as US economic data showed resilient consumers.
For the blue-chip Dow Jones Industrial Average, the 3% drop was its biggest weekly decline since September. It was also the Dow’s fourth straight weekly decline, its longest losing streak in nearly 10 months.
The S&P 500 and Nasdaq Composite were also down 2.7% and 3.3%, respectively.
After a strong January, stocks fell this month as a slew of economic data fueled fears that the US Federal Reserve may have to keep interest rates high for longer.
Data on Friday showed that the personal consumption expenditure (PCE) index, the Fed’s preferred indicator of inflation, rose 0.6% last month after rising just 0.2% in December. Consumer spending, which accounts for more than two-thirds of US economic activity, rose 1.8% last month, beating forecasts for a 1.3% increase.
Jason Pride, chief investment officer of private wealth at Glenmede, said previous market cycles have seen similar lagged market reactions to rising interest rates and data releases, which helps explain volatile trading patterns as investors slowly adjust.
“This market has not yet realized the likelihood of a recession, which we believe is a reality,” he said, noting that previous rate hikes have typically taken between six and 18 months before their full impact is felt in the economy.
“We don’t think (a recession) is a given, but the likelihood is higher than the market has embedded in its thought process.”
Futures traders tied to the Fed’s benchmark rate placed bets on at least three more rate hikes this year, with the peak rate hovering in the 5.25% to 5.5% range through June.
Cleveland Fed Chair Loretta Mester said the Fed should raise interest rates more than necessary if necessary to get inflation under full control.
The Dow Jones Industrial Average fell 336.99 points, or 1.02%, to 32,816.92, the S&P 500 lost 42.28 points, or 1.05%, to 3,970.04, and the Nasdaq Composite fell 195.46 points, or 1 .69% to 11,394.94.
Nine of the 11 major S&P sectors fell, with real estate, technology and consumer discretionary the biggest detractors. Communications services fell 1.4% to a sixth straight loss, its worst run since a similar six-session slide in August.
Megacap stocks including Tesla Inc, Amazon.com Inc and Nvidia Corp slipped between 1.6% and 2.6% as government bond yields rose. [US/]
The yield on two-year government bonds, which are very sensitive to Fed policy, rose to 4.826% – the highest level in almost four months. [US/]
Boeing Co slipped 4.8% after the Federal Aviation Administration said the planemaker temporarily halted deliveries of its 787 Dreamliner jets.
Adobe Inc fell 7.6% on reports the US Department of Justice would block the Photoshop maker’s $20 billion bid for cloud-based designer platform Figma.
Adobe’s stock drop was the largest since Sept. 15, the day the Figma agreement was announced.
Meanwhile, Range Resources Corp was up 11.9% in late trade, its biggest gain in nine months, after Bloomberg News reported that Pioneer Natural Resources was in talks to buy it. Pioneer shares fell 4.1% on the report.
Volume on US exchanges was 10.31 billion shares compared to the average of 11.53 billion for the entire session over the last 20 trading days.
The S&P 500 posted 2 new 52-week highs and 11 new lows; the Nasdaq Composite posted 44 new highs and 162 new lows.
(Reporting by Johann M Cherian and Sruthi Shankar in Bengaluru and David French in New York; Additional reporting by Sinead Carew; Editing by Arun Koyyur, Sriraj Kalluvila and David Gregorio)
