U.S. equities fell on the week as the nation’s central bank raised borrowing costs while dismissing the possibility of more aggressive future increases in the near term.
On Wednesday, the Federal Reserve delivered the biggest interest-rate increase since 2000 at a half percentage point, and announced that it would start running off its $8.9 trillion balance sheet at the beginning of June. That day, risky assets from stocks to bitcoin soared and Treasury yields tumbled after Chair Jerome H. Powell said a 75 basis-point move was not under consideration.
But on Thursday, those market moves were reversed as traders worried that officials could struggle to fight inflation amid the threat of a recession. The S&P 500 index lost about $1.3 trillion of market value and the tech-heavy Nasdaq 100 declined by the most since September 2020. Yields crept back up, with the rate for the 10-year Treasury ending the week above 3 percent for the first time since 2018.
“The relief rally spurred by the Fed decision to raise rates 50 basis points, while pushing back on the prospect of a 75 basis-point hike in June, has given in to renewed concerns about high inflation and slower economic growth,” said Jane Edmondson, founder and chief executive of EQM Capital.
U.S. payrolls jumped 428,000 last month, though the unemployment rate remained unchanged at 3.6 percent and the labor force participation rate dropped to a three-month low. At the same time, average hourly wages posted modest gains.
Through Friday, 436 of the S&P 500’s firms had reported earnings, with 78 percent beating analysts’ estimates, data compiled by Bloomberg showed. Peloton Interactive, the Walt Disney Co., Tyson Foods and Coinbase Global are scheduled to report quarterly results this coming week.
Wednesday’s data for the consumer price index, a key gauge of U.S. inflation, is expected to show that year-over-year inflation in April ticked lower to 8.1 percent from 8.5 percent in what would break an eight-month streak of rises, the longest since September 1979.
The Treasury will sell 13- and 26-week bills Monday. They yielded 0.915 percent and 1.409 percent in when-issued trading, respectively. The government will auction $36 billion in 10-year notes on Wednesday, and four- and eight-week bills Thursday.