U.S. stocks fell Friday with the S&P 500 index on track for its worst week since the collapse of Silicon Valley Bank in March suggesting the three month rally may be coming to an end.
Investors sought safety in bonds and the U.S. dollar as a wave of interest-rate hikes and hawkish commentary from international central bankers revived worries about global economic growth.
How are stocks trading?
-
The S&P 500
SPX,
-0.51%
fell 32 points, or 0.8%, to 4,349. -
The Dow Jones Industrial Average
DJIA,
-0.43%
fell 204 points, or 0.6%, to 33,741. -
The Nasdaq Composite
COMP,
-0.75%
slid 145 points, or 1.1%, to 13,484.
On Thursday, the Dow industrials fell 4.81 points, or less than 0.1%, to close at 33,946.71. The four-day slide is the blue-chip gauge’s longest losing streak since a five-day drop that ended on May 25, according to Dow Jones Market Data. Both the S&P 500 and Nasdaq finished higher, snapping a three-day losing streak.
What’s driving markets
U.S. stocks on Friday looked set to snap the longest streak of weekly gains since 2019 for the Nasdaq.
Concerns that interest rate rises by central banks might harm global economic growth were weighing on global equities on Friday, analysts said, following interest rate rises in the U.K., Switzerland, Norway and Turkey on Thursday. The latest batch of rate hikes followed moves by the central banks of Canada and Australia earlier this month.
Data released on Friday also showed business activity in the eurozone losing momentum in June, according to a purchasing managers survey. U.S. economic growth may also be slowing. The S&P Global U.S. services index fell to a 54.1 in June from 54.9 in the prior month, a two-month low, while the manufacturing index, meanwhile, slid to a five-month low of 46.9 from 51 in May.
“US stocks are sliding as the global growth outlook continues to deteriorate following soft global PMI readings,” Edward Moya, Senior Market Analyst at Oanda wrote in a note Friday. “The risk of a sharper economic downturn is greater for Europe than it is for the US, so that could keep the dollar supported over the short-term.”
With central banks around the world promising to raise borrowing costs even higher to tame inflation, analysts focused on the potential ramifications of higher interest rates for both the health of the economy and equity valuations. In the U.S., analysts across Wall Street have warned that the S&P 500 and Nasdaq Composite valuations are again looking unreasonably rich.
The price-to-earnings ratio for the S&P 500 based on Wall Street’s forecasts for corporate earnings over the next 12 months is just shy of 19, according to FactSet. That’s higher than the five-year average.
While the Federal Reserve opted to leave interest rates on hold in June, Chair Jerome Powell reiterated in Congressional testimony this week that senior Fed officials strongly support hiking rates “a couple of times” later this year.
Ryan Belanger, founder and managing principal at Claro Advisors, is among the analysts who believe the market’s rally is getting ahead of itself.
“The market is too confident that the Federal Reserve can engineer a soft landing and it would be wise for investors to reduce exposure to stocks,” Belanger said in emailed commentary.
With the S&P 500 down nearly 1.5% for the week, stocks are on track for their biggest such pullback since March 10, FactSet data showed.
Of course, the market is coming off a rally which is leading some to conclude that this might be a healthy pullback. The S&P 500 had climbed for five straight weeks through June 16, its longest such winning streak since November 2021, Dow Jones Market Data show. Meanwhile, the technology-heavy Nasdaq had logged eighth straight weekly advance to mark its longest stretch of gains since March 2019.
“Some of this is a bit of a giveback and when you look at the market action from the last month and a half, we’ve kind of gone parabolic,” said Paul Nolte, senior wealth manager and market strategist at Murphy & Sylvest Wealth Management, during a phone interview with MarketWatch.
Defensive assets like the dollar and high-quality sovereign bonds were outperforming on Friday, with the yield on the 10-year Treasury note
TMUBMUSD10Y,
falling five basis points to 3.744%. Yields on 10-year U.K. gilt
TMBMKGB-10Y,
and 10-year German bunds were down by 10 basis points or more. Crude prices
CL.1,
which are sensitive to expectations for the global economy, fell 1.6% to $68.49 a barrel.
However, U.S. Treasury Secretary Janet Yellen struck an upbeat tone Friday when she said during an interview with Bloomberg that recession risks in the U.S. have faded “because look at the resilience of the labor market, and inflation is coming down.”
Investors will hear from Cleveland Fed President Loretta Mester later. She’s expected to speak at 1:40 p.m. Eastern Time.
Companies in focus
-
3M Co. shares
MMM,
-0.38%
rose after the materials and chemicals company, and Dow Jones Industrial Average
DJIA,
-0.43%
component, offered $10.3 billion to settle claims it was responsible for so-called “forever chemicals” in drinking water. -
Virgin Galactic Holdings Inc.
SPCE,
-19.27%
dropped after the space-tourism company said late Thursday in a filing it’s seeking to raise $400 million to scale up its business and improve its fleet. -
Smith & Wesson Brands Inc.
SWBI,
+17.88%
jumped after the gun maker reported fiscal fourth-quarter results that topped expectations -
Starbucks
SBUX,
-2.11%
fell as workers at more than 150 stores plan to go on strike, their union said Friday, as tensions escalated in response to accusations that the company banned Pride-themed decorations at some U.S. stores.
