US stocks fell sharply on Friday for their biggest one-day drop since 2020 as investors continued to weigh aggressive comments on interest rates from Federal Reserve Chairman Jerome Powell as well as a new round of earnings. companies that greatly disappointed.
How were the shares traded?
-
Dow Jones Industrial Average DJIA
it fell 981.36 points, or 2.8%, to close at 33,811.40, after falling 1,019 points to its session low. The blue-chip gauge saw its biggest one-day percentage loss since Oct. 28, 2020. -
The S&P 500SPX
it fell 121.88 points, or 2.8%, to close at 4,271.78. -
The Nasdaq Composite COMP
it ended at 12,839.29 after a drop of 335.35 points, or 2.6%. The S&P 500 and the Nasdaq suffered their biggest one-day declines since March 7.
The Dow and S&P 500 posted their lowest results since March 15 on Friday, while the Nasdaq closed at its lowest since March 14.
On Thursday, stocks gave back strong gains and pulled back sharply lower. With Friday’s drop, the Dow suffered a weekly drop of 1.9%, its fourth consecutive loss. The S&P 500 fell 2.8% and the Nasdaq fell 3.8% for the third week in a row.
What drove the market?
Stock market weakness picked up on Friday where Thursday’s sell-off ended, as stocks fell into the afternoon after Powell added his support for moving faster on raising interest rates to cool inflation, measures that would include a possible interest rate hike of 50 basis points in May.
“It would seem that investors have been too complacent about the next [Fed] meeting, which will have to change,” Michael Kramer, founder of Mott Capital, said in a note.
The Cboe VIX Volatility Index,
an options-based measure of expected volatility over the next 30 days, had been too low ahead of the Federal Open Market Committee (FOMC) meeting on May 3-4, Kramer said. It was up on Thursday and up another 19.5% to 27.1- on Friday, moving above its long-term average just below 20.
Powell’s comments appeared to make a half percentage point rate hike in the base case, and the central bank is also likely to announce the start of its balance sheet sell-off, Kramer said.
Fed funds futures traders, meanwhile, have priced a 94% chance the Fed will make a 75 basis point rate hike in June, up from 70% on Thursday and 28% a week ago, according to CME FedWatch Tool.
Stocks trimmed losses somewhat in afternoon trading after Cleveland Fed President Loretta Mester said in a television interview that she remained in favor of 50 basis point rate hikes but did not see the need for the “shock” of an increase of 75 basis points. The rebound was short-lived, however, as shares fell to new session lows before the closing bell.
The benchmark 10-year Treasury yield BX:TMUBMUSD10Y,
meanwhile, it eased back slightly to around 2.89% after rising around 8.1 basis points to 2.917% on Thursday, the highest level since Dec. 4, 2018.
Read: How to invest as inflation, higher interest rates and war markets
The Fed’s aggressive turn and relentless rise in Treasury yields may be undermining the earlier appeal of stocks, previously seen as the only viable avenue for many yield-seeking investors.
“Investors seem to be moving away from the TINA (There is no alternative) narrative lately when it comes to equities,” Brian Price, head of investment management at Commonwealth Financial Network, said in a note. “This is the second week in a row of significant outflows from equity mutual funds and days like today are unlikely to change sentiment going forward. The only positive conclusion may be that sentiment has turned too bearish and we could see a counter-trend rally sometime in the next few weeks.”
In a graph: Investors just pulled $17.5 billion out of global stocks. They’re just getting started, says Bank of America.
All 11 major sectors of the S&P 500 fell on Friday, with health care falling 3.6% after a dovish earnings forecast from HCA Healthcare Inc. HCA
sent its shares down 21.8%. Other hospital operators, including Tenet Healthcare Corp. THC,
Community Health Systems Inc. CYH
and UHS Universal Health Services
it also fell between 14% to 17.9%.
However, of the 99 S&P 500 companies that reported earnings for the first quarter, 77.8% of them beat market expectations. Overall, 66% of companies beat estimates, according to Refinitiv data.
Next week will mark another big week for earnings, with 558 companies reporting, Saxo noted. “It is the great test of the ability of companies to transfer costs to their customers,” they said.
Investors may also be nervous ahead of the final round of France’s presidential election on Sunday. A surprise victory by far-right candidate Marine Le Pen over incumbent Francois Macron would likely spark market volatility, analysts said.
Watch: This is how the markets are positioned for the presidential elections on Sunday in France between Macron and Le Pen
Which companies were in focus?
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gap inc
gps
shares fell 18%, after a larger-than-expected drop in sales and as the retailer announced the departure of Old Navy CEO Nancy Green. -
Actions of Qualtrics International Inc.
XM
fell 10.5% after the experience management software company reported revenue above forecasts in the fiscal first quarter. -
addon inc
BREAK
shares rose 1.2% after the social media group reported quarterly earnings that missed Wall Street expectations. -
Actions of american express company
AXP
fell 2.8% after beating earnings expectations on Friday amid a continued rebound in travel and strong spending trends among younger consumers. -
Verizon Communications atC.VZ
fell 5.6% after its earnings report showed a net loss of postpaid telephony subscribers in its latest quarter, highlighting “competitive dynamics within the industry”, although it said it had its best quarter of band net additions wide in more than a decade.
How were other assets traded?
-
The ICE US Dollar Index DXY
it rose 0.5% to trade at its highest level since March 2020. -
Bitcoin BTCUSD
it fell 4.5% to trade near $39,400. -
The US Oil Benchmark CL
it fell $1.72, or 1.7%, to settle at $102.07 a barrel on the New York Mercantile Exchange, falling 4.1% for the week. -
Gold GC00
it fell $13.90, or 0.7%, to settle at $1,934.30 an ounce, leaving a weekly drop of 2.1%. -
The Stoxx Europe 600 XX:SXXP
fell 1.8% while the London FTSE 100 UK:UKX
fell 1.4%. -
The Shanghai Composite CN:SHCOMP
rose 0.2%, while the Hang Seng HK:HSI Index
fell 0.2% in Hong Kong Nikkei and Japan 225 JP:NIK
fell 1.6%.
