US stocks fall with focus on the Fed

US stocks fall with focus on the Fed

US stocks fell on Friday, ending the week lower and posting a four-week margin for the S&P 500 as investors questioned how aggressively the Federal Reserve needs to tame inflation.

The market went through a series of choppy moves as traders reassessed their bets on what the Fed might do at its September meeting. Many investors have been optimistic for weeks that inflation may have peaked and the central bank would moderate the magnitude of its future rate hikes.

But comments from central bank officials in recent days, coupled with the release of minutes from July’s Fed meeting, have brought the possibility of continued aggressive rate hikes back into focus. On Thursday, Federal Reserve Bank of St. Louis President James Bullard said he was leaning towards a 0.75 percentage point hike in September.

“This feels like a reassessment of whether there has been enough financial tightening,” said John Roe, head of multi-asset funds at Legal & General Investment Management. “And if it doesn’t, could we get more pain from central banks doing more?”

The S&P 500 fell 55.26 points, or 1.3%, to 4228.48 and was down 1.2% for the week. The Dow Jones Industrial Average fell 292.30 points, or 0.9%, to 33706.74, down 0.2% for the week. The Nasdaq Composite fell 260.13 points, or 2%, to 12705.22 and is down 2.6% for the week. Next week, central bankers will gather in Jackson Hole, Wyoming, for the Federal Reserve Bank of Kansas City’s annual economic policy symposium. Traders will be watching officials’ speeches closely for insight into the Fed’s mindset.

Markets have risen sharply as investors price in a soft landing for the US economy and the end of peak inflation. But all of that could be threatened if the dollar continues to weaken. WSJ’s Dion Rabouin explained. Illustration: David Fang

Some of the market’s biggest gainers over the past month were among the biggest losers on Friday.

Bed Bath & Beyond shares fell $7.52, or 41%, to $11.03, posting their biggest one-day loss ever after billionaire activist investor Ryan Cohen sold his entire stake in the company.

Bed Bath & Beyond has had a spectacular run, up 122% since the start of the quarter, thanks in part to increased interest from retail investors. But Mr. Cohen’s disclosure that he would be selling his stake sparked a mid-week selloff that threatened to erase much of the gains investors had made over the past few weeks.

Other meme stocks popular with retail investors also tumbled. GameStop lost $1.44, or 3.8%, to $36.49 and AMC Entertainment fell $1.27, or 6.6%, to $18.02.

The widespread withdrawal of investors from risky assets also hit cryptocurrencies. The price of bitcoin and ether dropped from Thursday afternoon’s levels.

Expectations for another aggressive rate hike spread to other markets. The yield on the 10-year US Treasury bond rose to 2.987% from 2.879% on Thursday. Yields rise when bond prices fall.

The WSJ Dollar Index rose 0.5% on Friday, the biggest one-week percentage gain since March 2020, according to Dow Jones Market Data. Higher interest rates tend to support the greenback as yield-seeking investors put more money into US dollar-denominated securities.

US stocks fall with focus on the Fed

Traders working on the floor of the New York Stock Exchange this week.

Photo: Angela Weiss/Agence France-Presse/Getty Images

In Europe, the pancontinental Stoxx Europe 600 closed down 0.8%.

In Asia, Hong Kong’s Hang Seng and Japan’s Nikkei 225 both ended roughly flat. China’s Shanghai Composite lost 0.6%.

Write to Caitlin McCabe at [email protected] and Akane Otani at [email protected]

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Appeared in the August 20, 2022 print edition as “Stocks Fall as Investors Rethink Inflation”.