NEW YORK — U.S. stocks fell on Friday after a mixed start to earnings season. Concerns over a potential escalation of tensions in the Middle East have spooked financial markets, prompting investors to look for safer places to park their money.
The S&P 500 fell 1.5%, ending its worst week since October, when Wall Street’s massive stock rally began. The Dow Jones Industrial Average fell 475 points, or 1.2%, and the Nasdaq Composite fell 1.6% from its previous record.
A series of reports since the start of this year have shown that both inflation and the overall economy remain in worse shape than expected. That has forced traders to scale back their expectations for how many times the U.S. Federal Reserve may cut its key interest rates this year. Traders are primarily betting on just two rate cuts, down from at least six expected rate cuts at the start of the year, according to CME Group data.
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This year’s rise in oil prices has further heightened concerns that upward pressure on inflation will increase further. Crude oil rose again on Friday amid continued tensions in the Middle East region.
At the same time, bond markets saw yields on U.S. Treasuries fall and the price of gold rise, a phenomenon that often occurs when investors flock to investments deemed safer.
The yield on the 10-year U.S. Treasury note fell to 4.51% from 4.58% late Thursday. Record-setting gold came close to hitting $2,450 an ounce for the first time before paring its gains.
Preliminary reports suggesting that US consumer sentiment is weakening also added to the tension. This is an important update because spending by U.S. consumers is the main driver of the economy.
Perhaps more concerning is that U.S. consumers may become more pessimistic about inflation. The outlook for inflation over the next 12 months is the highest since December. Such expectations can create a self-fulfilling prophecy in which purchases intended to anticipate price increases will only fuel inflation.
Overall, the S&P 500 fell 75.65 points to 5,123.41. The Dow Jones Industrial Average fell $475.84 to $37,983.24, and the Nasdaq Composite Index fell $267.10 to $16,175.09.
Banks are heading into earnings season, with analysts predicting a third straight quarter of growth for S&P 500 companies, according to FactSet. This week will feature reports from major companies such as Bank of America, Johnson & Johnson, and UnitedHealth Group.
Federal Reserve Chairman Jerome Powell is scheduled to speak with the Bank of Canada governor at a high-profile event on Tuesday.Other Fed officials are expected to make comments throughout the week that could shake up traders’ expectations. Predict future trends in interest rates and drive the next move on Wall Street.
