Wall Street is at its worst level in nearly two years on Friday as the end draws near to what has been a miserable month for markets around the world.
The S&P 500 was down 0.4% in afternoon trading after toggling between small losses and gains throughout the morning. It’s at its lowest level since November 2020, and it’s on course to close its sixth weekly loss in the last seven, one of its worst months since the coronavirus crash in early 2020 and its losing third quarter. consecutive.
The Dow Jones Industrial Average was down 213 points, or 0.7%, at 29,010 as of 1:56 p.m. Eastern, and the Nasdaq composite was down 0.2%.
The main reason for this year’s struggles for financial markets has been fear of a possible recession, as interest rates soar in hopes of curbing the high inflation that has swept the world.
The Federal Reserve has been at the forefront of the global campaign to slow economic growth and hurt labor markets just enough to reduce inflation, but not enough to cause a recession. More data arrived on Friday to suggest the Fed will keep its foot firmly on the brakes in the economy, increasing the risk that it will go too far and cause a slowdown.
The Fed’s favorite inflation measure showed that it was worse last month than expected by economists. That should keep the Fed on track to keep raising rates and keep them high for some time, as it has promised loudly and repeatedly.
Vice President Lael Brainard was the latest Fed official on Friday to insist that it will not cut rates prematurely. That has helped to drown out hopes on Wall Street of a “pivot” to easier rates as the economy slows.
“At this point, it’s not a question of whether we’ll have a recession, but what kind of recession it will be,” said Sean Sun, portfolio manager at Thornburg Investment Management.
Higher interest rates reverse one of the main levers that set stock prices. The other lever also appears to be under threat as a slowing economy, high interest rates and other factors weigh on corporate earnings.
Cruise ship operator Carnival fell 21% for one of Wall Street’s worst losses after reporting a bigger loss for its latest quarter than analysts expected and revenue below expectations.
Nike fell 12.1% in what could be its worst day in two decades after saying its profitability weakened over the summer due to discounts needed to clean up suddenly overcrowded warehouses. The amount of shoes and equipment in Nike’s inventory increased 44% over the previous year.
The sharp rise in the US dollar this year against other currencies has also hurt Nike. Its worldwide revenue increased by only 4%, instead of the 10% it would have if currency values had remained the same.
Nike is not the only company to see its stocks soar. The same is true for several major retailers, and such bad news for businesses could actually mean some relief for shoppers if it leads to more discounts. This echoed some glimmers of encouragement buried in Friday’s report on the Fed’s preferred inflation measure. This showed some slowing in inflation for goods, even as price gains continued to accelerate for services.
Another report released on Friday also offered a glimmer of hope. A measure of consumer sentiment showed that US expectations for future inflation declined in September. This is crucial for the Fed, as tight expectations of higher inflation can create a debilitating, self-perpetuating cycle that makes it worse.
Treasury yields eased a bit on Friday, releasing some of the pressure that has been building up in the markets.
The 10-year Treasury yield fell to 3.75% from 3.79% on Thursday evening. The two-year yield, which more closely tracks expectations for Fed action, fell to 4.16% from 4.19%.
Yet a long list of other worries continue to hang over global markets, including growing tensions between much of Europe and Russia following the invasion of Ukraine. A controversial tax cut plan by the British government has also sent bond markets spinning recently on fears it could further worsen inflation. Bond markets only calmed down a bit after the Bank of England pledged to buy mid-week, but plenty of UK government bonds are needed to push yields lower.
The meteoric and meteoric rise of the American dollar against other currencies, meanwhile, increases the risk of creating so much stress that something cracks somewhere in the global markets.
Stocks around the world were mixed after a report showed inflation in the 19 countries that use the euro in Europe hit a record high and data from China indicates that factory activity has weakened the.
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AP Business Writers Joe McDonald and Matt Ott contributed.