Wall Street ended its worst week in three months with further losses on Friday, as a stark warning from FedEx Corp. already concerned investors at rapidly deteriorating trends in the economy.
The S&P 500 fell 0.7%, with all but two of its 11 corporate sectors down. The benchmark index fell 4.8% this week, with much of the loss coming from a 4.3% drop on Tuesday after a surprisingly hot inflation report. The last time it posted a major weekly decline was the week ended June 17th.
The Dow Jones Industrial Average fell 0.5% and the Nasdaq Composite fell 0.9%. The Russell 2000 index of smaller companies suffered the heaviest losses, falling 1.5%.
All major indices have now posted losses in four of the past five weeks.
Shares of FedEx tumbled 21.4% for the biggest one-day selloff on record after warning investors that earnings for the fiscal first quarter were likely to fall short of forecasts on a slowdown in business. The parcel delivery service is also closing storefronts and company offices as it expects business conditions to deteriorate further.
Industrial giant General Electric Co. also helped put dealers in a selling mood after its chief financial officer said the company remained bogged down by supply chain issues that were driving up costs. Shares of GE fell 3.7% on Friday.
The worrying corporate updates hit a market already nervous about stubbornly high inflation — and the higher interest rates being used to fight inflation. Wall Street is bracing for another sharp rate hike by the Federal Reserve next week after a two-day meeting of central bank policymakers on Tuesday.
“Based on this week’s market results, there is no question that investors head into the weekend, #1 very concerned about the US economy looking at this year’s balance sheet and #2 all eyes on the actions of the Fed in the next week,” said Greg Bassuk, CEO of AXS Investments.
The S&P 500 fell 28.02 points to 3,873.33. It’s down 18.7% so far this year.
The Dow fell 139.40 points to 30,822.42 and the Nasdaq slipped 103.96 points to 11,448.40. The Russell 2000 fell 27.04 points to 1798.19.
Technology stocks, banks and energy companies had some of the biggest losses. Adobe Inc. fell 3.1%, Bank of America Corp. up 1.1% and Chevron Corp. by 2.6%.
Household goods manufacturers, typically considered less risky assets, fared better than the rest of the market. Campbell Soup Co. rose 1.3%.
The Fed is aggressively raising interest rates to cool the hottest inflation in four decades, but the effort has raised fears the central bank could hit the brakes too hard and plunge the economy into recession.
The US has raised interest rates four times this year and economists expect another significant three-quarters point hike to be approved next week.
Higher interest rates tend to weigh on equities, particularly the more expensive technology sector. Technology stocks in the S&P 500 are down more than 26% for the year, and communications companies are down more than 34%. They are the worst performing sectors within the benchmark index so far this year.
The real estate sector also suffers when interest rates rise. Average US long-term mortgage rates topped 6% this week for the first time since the 2008 housing crash. The higher interest rates could make an already tight real estate market even more expensive for homebuyers.
Reports from the federal government this week showed that prices of almost everything but gas are still rising, the job market is still piping hot and consumers are continuing to spend, all giving ammunition to Fed officials who say the economy is tolerating higher interest rates can increases.
“The market is really looking at data in terms of what the Fed is going to do next year and how far it needs to go,” said Scott Wren, senior global market strategist at the Wells Fargo Investment Institute. “I think they will be in a good place after September where they will have a lot of flexibility to get where they want to be by the end of the year.”
Treasury yields fell slightly on Friday after a report showed US household inflation expectations fell to their lowest level since last year. This is positive for markets as the Fed fears that raising such expectations would make it much harder to fight inflation.
However, the survey also showed that households are still very uncertain about where inflation is headed.
The US 2-year Treasury yield, which tends to follow expectations of Fed action, fell to 3.85% from 3.92% just before the Consumer Expectations report. The 10-year yield fell from 3.49% to 3.45%.