By Christine Idzelis and Joseph Adinolfi
U.S. stocks ended lower Friday, with the S&P 500 and Nasdaq Composite each snapping four-week win streaks, as investors digested more hawkish commentary out of the Federal Reserve and more than $2 trillion equity-linked options expired.
How did stocks trade?
The Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA +0.13% fell 292.30 points, or 0.9%, to close at 33,706.74.
The S&P 500 /zigman2/quotes/210599714/realtime SPX +0.11% dropped 55.26 points, or 1.3%, to finish at 4,228.48.
The Nasdaq Composite /zigman2/quotes/210598365/realtime COMP +0.16% slid 260.13 points, or 2%, to end at 12,705.22.
For the week, the Dow slipped 0.2% while the S&P 500 fell 1.2% and the Nasdaq dropped 2.6%. The S&P 500 and Nasdaq each snapped a four-week stretch of gains, while all three major benchmarks saw their biggest weekly drop since the week ending July 1, according to Dow Jones Market Data.
What drove markets?
U.S. stocks fell Friday as investors assessed a jump in Treasury yields and the prospect of the Federal Reserve potentially sticking with its aggressive monetary policy tightening as it battles high inflation.
After the U.S. stock market’s “tremendous” rally recently and with the “central bank tightening that’s in the pipeline,” it’s an opportune time to trim back on equities, according to Keith Lerner, co-chief investment officer of Truist Advisory Services.
“Valuations are pretty elevated after the rebound,” Lerner said in a phone interview Friday. A trading range for the S&P 500 of 4,200 to 4,300 is “less favorable” from a “risk-reward” perspective at this time, he said, while pointing to Friday’s jump in Treasury yields as hurting growth stocks in particular.
The S&P 500’s consumer-discretionary /zigman2/quotes/210600228/delayed XX:SP500.25 +0.44% , communication-services /zigman2/quotes/210600403/delayed XX:SP500.50 +0.13% and information-technology /zigman2/quotes/210600213/delayed XX:SP500.45 +0.46% sectors were among the hardest hit sectors Friday, FactSet data show. Beyond growth stocks, the financials sector /zigman2/quotes/210599854/delayed XX:SP500.40 +0.07% also fell sharply, which Lerner attributed to concerns that Fed interest-rate hikes to tame high inflation will lead to “a slower economy.”
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The yield on the 10-year Treasury note /zigman2/quotes/211347051/realtime BX:TMUBMUSD10Y 0.00% jumped 10.8 basis points Friday to 2.987%, the highest since July 20 based on 3 p.m. Eastern Time levels, according to Dow Jones Market Data. “That’s a strong move,” Lerner said, adding that 2-year Treasury yields /zigman2/quotes/211347045/realtime BX:TMUBMUSD02Y 0.00% also rose amid expectations for further rate hikes.
Meanwhile, inflation in Europe, including in Germany, is a reminder that “global central banks’ work is not done yet,” according to Lerner. He cited the sharp rise in Germany’s producer prices , reported Friday, as influencing U.S. investors’ concerns over high inflation and rising rates.
In the U.S., investors are assessing the odds of the Fed potentially raising its benchmark rate by 75 basis points at its September meeting.
St. Louis Fed President James Bullard told The Wall Street Jo urnal on Thursday that he would “lean toward” a 75 basis point hike in September. Speaking Friday morning, Richmond Fed President Tom Barkin said the Fed “will do what it takes” to drive inflation back toward its 2% target, Bloomberg reported , while Reuters reported Barkin saying the Fed’s efforts needn’t be “ calamitous .”
Interest-rate-sensitive tech stocks have been bruised this week, with the Nasdaq dropping 2.6%, according to FactSet data. The S&P 500 booked a weekly drop of 1.2% while the blue-chip gauge Dow Jones Industrial Average slipped 0.2%.
That marked a pause from the stock market’s recent rally. Last week the S&P 500 and tech-heavy Nasdaq each had booked their longest weekly win streaks since November 2021, after notching four straight weeks of gains.