Another volatile trading day on Wall Street ended Thursday with stocks closing lower after giving up an early rally. The late afternoon fade extended the market’s losing streak as it nears its fourth weekly loss.
Markets are still processing the latest indications from the Federal Reserve a day earlier that the central bank is increasingly concerned about inflation and plans to raise interest rates and take further steps soon. measures to combat it. Investors were encouraged by strong US economic growth figures, which showed the biggest rise in GDP last year since 1984.
The S&P 500 fell 0.5%. The benchmark was up 1.8% at the start. The Dow Jones Industrial Average slipped less than 0.1% and the Nasdaq fell 1.4%. Small company stocks fell more than the broader market, sending the Russell 2000 Index down 2.3%.
Stocks have been on a rollercoaster ride throughout the week as investors try to adjust to the idea of higher interest rates after the Fed’s near-zero rate policy contributed to drive up stock prices for nearly two years.
“I would kind of call it a healthy boost,” said Jason Pride, director of private wealth investments at Glenmede. “The market sees the changing terrain and is adapting accordingly; the land is going to have higher interest rates.”
The S&P 500 fell 23.42 points to 4,326.51, its third consecutive decline. The index has only posted a five-day gain so far in January. It is less than 10 points away from entering a “correction”, meaning a 10% decline from the all-time high reached on January 3.
The Dow fell 7.31 points to 34,160.78. The Nasdaq lost 189.34 points to 13,352.78. The Russell 2000 fell 45.18 points to 1,931.29.
Companies dependent on consumer spending and banks were among the largest weightings in the S&P 500. Royal Caribbean fell 6.3% and JPMorgan Chase 1.8%.
Technology stocks also lost ground. The sector has been a key driver of swings in the broader market as investors shift money in anticipation of higher interest rates. Expensive tech companies and other growth stocks are seen as less attractive when interest rates rise. Nvidia fell 3.6%.
Energy and communications stocks made solid gains on Thursday. Chevron rose 2% and Netflix jumped 7.5%.
Bond yields fell. The 10-year Treasury yield fell to 1.80% from 1.84% on Wednesday night.
The U.S. economy grew 5.7% in 2021, the strongest calendar-year growth since rising 7.2% in 1984 after a previous recession. It ended the year rising at a surprisingly fast 6.9% annual rate from October through December as businesses restocked inventories, the Commerce Department reported.
The upbeat report came a day after the Federal Reserve expressed some concerns about how quickly it will ease support for markets and the economy. He said he “expects it to be appropriate soon” to raise interest rates, and investors expect the first in a series of rate hikes to occur in March. The Fed also said it would phase out its monthly bond purchases, which were aimed at lowering longer-term rates, in March.
The Fed is monitoring the impact of inflation on businesses and consumers and Fed Chairman Jerome Powell has acknowledged that the pressure is not diminishing. This could mean the central bank needs to take an even more aggressive approach to raising interest rates and removing the support it has put in place for the markets.
Companies across a wide range of industries have been warning investors for months that supply chain issues and rising raw material costs have hurt operations. Higher prices passed on to consumers could lead to lower spending and hurt economic growth.
Investors are watching the latest round of corporate earnings closely to gauge how badly companies are affected by inflation and how they expect it to affect them in the future.
The tech sector has been particularly hard hit by supply chain issues with a long-standing shortage of computer chips. Semiconductor equipment maker Lam Research fell 6.9% after saying supply chain issues worsened in December. Chipmaker Intel fell 7% after giving investors weak earnings forecasts.
The chip shortage continues to plague the automotive industry. Tesla fell 11.6% after telling investors that the shortage would prevent the company from rolling out new models in 2022.
Strong earnings helped lift shares of many other companies. ServiceNow rose 9.1% after the software maker that automates enterprise technology operations reported strong financial results. Electronic storage maker Seagate Technology rose 7.7% and jeans maker Levi Strauss rose 8.4% after also reporting encouraging financial results.
All the main indices are in the red for the year. The S&P 500 is down 9.2%. The slowdown is impacting IPOs after a record-breaking 2021, said Matthew Kennedy, senior IPO market strategist at Renaissance Capital.
Three major companies withdrew their IPOs after setting a proposed price, he said, which compares to a postponement in January 2021. Several smaller deals have delayed their offerings.
“The current market volatility makes it nearly impossible to strike deals,” he said.
He also said the Fed’s policy shift spooked investors, especially for growth stocks, where even a few rate hikes can impact the value of future cash flows. He added that the IPO market reset could prove healthy in the long run and be part of the market’s natural cycle.