Shares on Wall Street fell on Friday, reversing earlier gains after a downbeat survey of inflation expectations rekindled concerns over planned interest rate hikes by the Federal Reserve.
The University of Michigan’s monthly survey of US consumers showed that expectations for price increases over the next 12 months had fallen from 4.7% to 5.1%. The Fed has been aggressively raising interest rates in an effort to reduce inflation and is closely monitoring consumer expectations, which may fuel workers’ wage demands and make it harder to bring the rate of inflation down.
Inflation concerns outweighed more positive general consumer sentiment survey results, which beat economists’ forecasts, and strong earnings reports from several of the country’s largest banks. .
The broad S&P 500 index fell 2.3% and the Nasdaq Composite, which is dominated by tech stocks more sensitive to interest rate expectations, lost 3.1%.
Friday’s falls pushed the S&P 500 down 1.6% for the week, despite a strong rally that surprised many traders on Thursday. The blue-chip index initially fell more than 2% in response to worse-than-expected inflation data, before reversing the trend to close up 2.6%.
Several investors said Thursday’s moves were exacerbated by technical factors and did not reflect a substantial change in the economic outlook.
Greg Boutle, US head of equity and derivatives strategy at BNP Paribas, said: “We were in an oversold market and that led to the capitulation of some of the more bearish positioning. [but] we wouldn’t read too fundamentally into that.
Michael Hartnett, chief investment strategist at Bank of America, wrote that stocks were “simply so oversold” after weeks of declines, but predicted that “the ultimate lows are yet to be seen.”
Markets are now pricing in expectations of a fourth consecutive 0.75 percentage point interest rate hike by the Fed in November.
Investors also responded to a fresh round of financial statements from U.S. banks on Friday, with JPMorgan and its peers kicking off the new earnings season in earnest. Corporate reports will be scrutinized in the coming days for signs of strain from high prices and rising borrowing costs.
Shares of JPMorgan rose 1.7% after the bank reported a less severe decline in third-quarter revenue than analysts had expected. Shares of Citigroup and Wells Fargo also rallied following their third-quarter results, but Morgan Stanley fell 4.8% on lower investment banking fees.
Friday’s market moves also came after British Prime Minister Liz Truss sacked Chancellor Kwasi Kwarteng and reversed a planned corporate tax cut. The government’s ‘mini’ budget, presented on September 23, sparked a sell-off in UK bonds as investors feared borrowing more. The volatility in the UK spilled over into other larger markets, such as US Treasuries.
Gilts came under renewed selling pressure late on Friday, reversing a rally earlier in the session. The 30-year yield added 0.27 percentage points to 4.80% as the price fell.
The pound slid 1.3% against the dollar to $1.118, after hitting $1.1365 overnight. The dollar gained 0.8% against a basket of six peers, and the Japanese yen hit a new 32-year low against the dollar at ¥148.86.
Additional reporting by Kate Duguid in New York