By Christine Idzelis and Joseph Adinolfi
U.S. stocks tumbled Friday, with the Dow Jones Industrial Average closing down more than 1000 points for its worst daily percentage drop since May, after Federal Reserve Chair Jerome Powell said the central bank will continue its battle against inflation “until the job is done” of getting the cost of living back to its 2% target.
How did stocks trade?
The Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA +0.63% plunged 1,008.38 points, or 3%, to close at 32,283.40, in its largest percentage drop since May 18.
The S&P 500 /zigman2/quotes/210599714/realtime SPX -0.25% dropped 141.46 points, or 3.4%, to finish at 4,057.66, in its biggest percentage decline since June 13.
The Nasdaq Composite /zigman2/quotes/210598365/realtime COMP -0.79% tumbled 497.56 points, or 3.9%, to end at 12,141.71, in its largest percentage drop since June 16.
For the week, the Dow sank 4.2%, while the S&P 500 shed 4% and the Nasdaq lost 4.4%. All three benchmarks booked a second straight week of losses, according to Dow Jones Market Data.
What drove the market?
U.S. stocks tumbled Friday, with losses led by the technology-heavy Nasdaq Composite, after the Federal Reserve Chair Jerome Powell reiterated his resolve to bring soaring inflation under control through higher interest rates.
In remarks that were more hawkish than many investors anticipated, Powell tried to dispel any hopes for a less-aggressive monetary policy stance by insisting that the central bank will persist in its inflation fight, even if that means causing some near-term economic pain for American families.
“Reducing inflation is likely to require a sustained period of below-trend growth,” Powell said . “While higher interest rates, slower growth, and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses.”
As U.S. stocks dropped Friday, the S&P 500’s information-technology CO:IUIT 0.00% , communication-services /zigman2/quotes/210600403/delayed XX:SP500.50 -1.40% and consumer-discretionary sectors /zigman2/quotes/210600228/delayed XX:SP500.25 -0.55% were hardest hit, FactSet data show. Tech plunged 4.3% while the other two areas each sank 3.9%, as growth stocks suffered more than value.
“It feels like investors have literally been at the beach all summer and forgetting about the problems that exist economically,” said Ryan Belanger, founder and managing principal at Claro Advisors, in a phone interview Friday. “This morning, Chair Powell’s remarks just kind of refocused the lens here.”
Jake Jolly, senior investment strategist at BNY Mellon Investment Management, said Powell’s remarks solidified his stay-tough stance.
“The market was pretty clearly set up for a hawkish ‘sticking to the script’ type of speech and the initial impression is that was what Chair Powell delivered — and he did in in less than 10 minutes,” Jolly said. “The key takeaway is he closed the door on this idea that there is going to be a short-term pivot on Fed policy.”
As the selloff accelerated, Wall Street’s “fear gauge,” the CBOE Volatility Index /zigman2/quotes/210598281/delayed VIX +2.23% , rose to above 25, according to FactSet data. That compares with a 200-day moving average of about 24.7, FactSet data show.
In the bond market, yields on the 10-year and two-year Treasury notes rose slightly Friday, with the spread between them in inverted territory.