Shares fell on Friday, capping a volatile week of trading, a day after posting a historic rally as investors digested inflation expectations.
The Dow Jones Industrial Average fell 405 points, or 1.35%, but was still on track to end the week higher after Thursday’s gains. The S&P 500 lost 2.16%, on track to end the week lower. The Nasdaq Composite fell 2.71%, weighed down by losses from Tesla and Lucid Motors, which were each down more than 5%.
Stocks fell to session lows after a University of Michigan consumer survey showed inflation expectations were rising, a sentiment the Federal Reserve is likely watching closely. The tech-heavy Nasdaq led declines, with growing companies the most sensitive to interest rate hikes.
Meanwhile, bond yields soared, with the 10-year US Treasury rising above 4% for the second time in two days as investors reacted to higher inflation expectations.
Markets swayed throughout the week as investors assessed new inflation data that will inform the Fed as it continues to raise interest rates to cool price increases. On Thursday, stocks made a major turnaround. The Dow Jones ended Thursday’s session up 827 points after falling more than 500 points to the intraday low. The S&P 500 rose 2.6% to snap a six-day losing streak and the Nasdaq Composite jumped 2.2%.
Thursday marked the fifth biggest intraday reversal from a low in S&P 500 history, and it was the fourth biggest for the Nasdaq, according to SentimenTrader.
The movements followed the release of consumer price index, a key reading for US inflation that came in hotter than expected for the month of September. Initially, that weighed on markets as investors braced for the Federal Reserve to continue with its aggressive rate hike plan. Later, however, they ignored these concerns.
Still, persistent inflation remains a problem for the Fed and for investors to worry about central bank policy tightening.
“With core CPI still moving in the wrong direction and the labor market strong, the conditions are not in place for a Fed policy pivot, which would be one of the conditions for a sustained rally in the equity market,” wrote UBS Global Wealth Management. chief investment officer Mark Haefele in a Friday note. “Furthermore, as inflation stays elevated for longer and the Fed increases further, the risk increases that the cumulative effect of policy tightening will push the U.S. economy into recession, undermining the outlook for corporate earnings.”