Stocks tanked Friday – with the Dow tumbling nearly 1,000 points – as investors absorbed another round of corporate earnings and increasingly hawkish comments from Federal Reserve leaders on rate hikes.
The Dow Jones industrial average closed down 981.36 points, or 2.8%, to end at 33,811.40. The broader S&P 500 index shed 121.88 points, or 2.8%, to settle at 4,271.78 while the tech-heavy Nasdaq tumbled 335.36 points, or 2.6%, to close at 12,839.29.
It was the worst daily decline since October 2020, according to Marketwatch, bringing the Dow 1.7% lower for the week.
Fed officials dampened market sentiments after signaling the central bank could push through bigger interest rate hikes to bring inflation under control. Investors had already been planning for a series of rate increases of 0.25%. But Fed Chairman Jerome Powell made clear 0.5% is a distinct possibility, while St. Louis Fed chief James Bullard said an even larger rate hike of 0.75 should not be ruled out.
“It is appropriate in my view to be moving a little more quickly” to raise interest rates, Powell told CNBC on Thursday. “I also think there is something to be said for front-end loading any accommodation one thinks is appropriate … I would say 50 basis points will be on the table for the May meeting.”
The potential of a more aggressive timeline appears to be the main factor behind the stock declines, analysts told The Washington Post, and forcing investors to reevaluate their holdings. There also are concerns the Fed could overcompensate in its efforts to tame inflation, increasing the likelihood of a recession.
“The Fed’s job is to raise rates enough to tame inflation, but not so much as to stop economic growth,” said Michael Farr of the Washington, D.C.-based investment firm Farr, Miller and Washington. “The chances that they can get it exactly right are really low.”
Higher rates mean higher borrowing costs, which can put a damper on spending by both households and businesses. Mortgage rates, for example, have surged in recent weeks. The U.S. average on a 30-year fixed-rate loan hit 5.11% on Thursday, according to Freddie Mac, compared with 2.14% a year ago.
Markets also are responding to a crush of corporate earnings. Verizon shares fell 6% after the company reported a drop in phone subscribers. Gap shares plunged nearly 19% after the clothing retailer slashed its sales outlook. Caterpillar stock dropped 6%.
Several large health care companies saw substantial drops linked to their earnings reports. HCA Healthcare, a public holding company that operates 185 hospitals, was down 22% after modifying its guidance.
“We’re still very early into earnings season, but higher costs are already denting profit margins and there doesn’t appear to be any material relief in sight,” said Brian Price, head of investment management for Commonwealth Financial Network.
International markets also suffered losses. The European Dax and Stoxx indexes fell 2.5% and 1.7%, respectively.
The yield on the 10-year U.S. Treasury note was roughly flat at 2.905%.
Oil prices have held steady over the past week, smoothing out some of the volatility that has rattled energy markets since Russia’s invasion of Ukraine. West Texas Intermediate crude, the U.S. benchmark, was down 1.4% to around $102 per barrel after hovering there for most of the past week. Brent crude, the global benchmark, was down 1.7% to $106 per barrel.