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Market Snapshot: Dow down more than 400 points, U.S. stocks turn sharply lower as high inflation drags down consumer sentiment as Ukraine fears rise

U.S. stock indexes fell sharply Friday afternoon as investors weighed a sharp drop in consumer sentiment, a pickup in near-term inflation expectations, and increased tensions between Ukraine and Russia which sent oil prices spiking and led investors to dump risky assets like equities.

What are stock indexes doing?

The Dow Jones Industrial Average
DJIA,
-0.77%

fell 445 points, or 1.3%, to about 34,797

The S&P 500
SPX,
-1.27%

was down 74 points, or 1.6%, at 4,430.

The Nasdaq Composite
COMP,
-2.02%

fell 317 points, or 2.2%, to 13,868.

Friday’s fall turned the S&P 500 lower for the week, down around 1.4%, while the Nasdaq Composite was headed for a 1.5% weekly fall; the Dow was down around 0.7% for the week.

On Thursday, the Dow fell 526 points, or 1.5%, while the S&P 500 dropped 1.8% and the Nasdaq dropped 2.1%.

What’s driving markets?

Major U.S. stock benchmarks were falling Friday afternoon as investors assessed a survey showing a slump in consumer sentiment amid concerns about high inflation.

The University of Michigan’s preliminary February gauge of consumer sentiment fell to 61.7, from January’s level of 67.2, the lowest reading since October of 2011. Economists were expecting a reading of 67, according to economists surveyed by The Wall Street Journal.

“Consumers are very much concerned about inflation,” said Luke Tilley, chief economist at Wilmington Trust, in a phone interview Friday. “Nearly half of all consumers are expecting declines in their inflation-adjusted incomes during the year ahead.”

The University of Michigan survey also found expectations for inflation over the next year rose to 5% from January’s expectation of 4.9%, the highest level since July of 2008, while inflation expectations over five years held steady at 3.1%.

“Long-term inflation expectations are crucial to the path” of Federal Reserve policy, said Tilley, adding it’s “encouraging” that five-year expectations didn’t move higher in the latest reading of the survey.

Meanwhile, Thursday’s developments surrounding inflation and the possible path the Fed could take to tame it through rate hikes continued to reverberate.

The Labor Department reported Thursday morning that consumer prices jumped 7.5% in the 12 months ending January. Then, in an interview with Bloomberg News, St. Louis Fed President James Bullard talked about the possibility for the central bank to start with a 50-basis point hike in March — or even a rate hike in between scheduled meetings.

That lifted the 2-year Treasury yield
TMUBMUSD02Y,
1.540%

by 21 basis points — the largest single-day rise since June 5, 2009. Th yield on the 10-year Treasury note rose above 2% Thursday and was trading just below that level Friday afternoon.

Other Fed speakers late Thursday played down the prospect of a half-point hike. Richmond Fed President Tom Barkin said he was open to the concept, but questioned whether there was a “screaming need” to do it. “I would have to be convinced on that,” he said at an event, according to Reuters. San Francisco Fed President Mary Daly was quoted as telling Market News International that a half-point move wasn’t her preference.

See: A ‘firestorm’ of hawkish Fed speculation erupts following strong U.S. inflation reading

As investors anticipate rate hikes by the Fed, “the rotation within sectors in the market has been incredibly important,” said Tilley. They’ve rotated into cyclical and value stocks, he said, while “some of the high-flying growth stocks” in the consumer discretionary and technology sectors are down.

Tech and consumer discretionary were the most beaten down sectors of the S&P 500 Friday afternoon, with each showing a decline of about 2.4%, according to FactSet data, at last check. Energy was the sole sector trading higher, up 2.5%

Some market watchers argued that the market reaction to the inflation data and to Bullard’s comments might have ben overdone.

“The market tends to discount the most hawkish FOMC (Federal Open Market Committee) member in a rising rate environment, but policy is ultimately likely to reflect the median of the whole policy-setting committee,” said Alex Pelle, U.S. economist at Mizuho Securities, in a note.

“The FOMC is likely to seek consensus — both formally and informally — as it lifts rates for the first time in several years. High inflation will weigh on some policy makers’ views, but a flatter curve will give many other policy makers pause, too,” he said.

Meanwhile, a solid earnings season and a renewed pickup in corporate buybacks has helped underpin equities, analysts said, while inflation worries continue to contribute to volatility.

“The market remains in a choppy, but upward direction helped by $150 billion in retail fund flows this year and a return of corporate buybacks,” said Mark Hackett, chief of investment research at Nationwide.

However, the sell off in equities sped up in afternoon trading after news reports that “the U.S. believes Putin has decided to invade Ukraine and communicated those plans to the Russian military” and military action expected next week.

The BBC reported that the U.K. has told British nationals to leave Ukraine immediately. A Downing Street spokesperson also said Prime Minister Boris Johnson feared for the “security of Europe in the current circumstances.”

Which companies are in focus?

Under Armour Inc.
UAA,
-11.57%

reported earnings and revenue that topped expectations. Shares of the athletic-apparel company fell around 11%.

Shares of Goodyear Tire & Rubber Co.
GT,
-27.83%

dropped 26% despite reporting a much stronger-than-expected rise in profits.

How are other assets faring?

The yield on the 10-year Treasury note
TMUBMUSD10Y,
1.978%

was down about 7 basis points at around 1.96%. Yields and debt prices move opposite each other.

The ICE U.S. Dollar Index
DXY,
+0.50%
,
a measure of the currency against a basket of six major rivals, rose 0.2%.

Bitcoin
BTCUSD,
-2.52%

was down 1.7%.

Oil futures moved higher, with West Texas Intermediate crude for March delivery
CLH22,
+3.96%

CL.1,
+3.96%

up about 3.9% at $93.37 a barrel, while gold futures
GC00,
+1.26%

were up 0.6%.

The Stoxx 600 Europe Index
SXXP,
-0.59%

fell 0.6%, while London’s FTSE 100
UKX,
-0.15%

edged down 0.1%.

The Shanghai Composite
SHCOMP,
-0.66%

fell 0.7%, while the Hang Seng Index
HSI,
-0.07%

shed 0.1% in Hong Kong.

—Steve Goldstein contributed to this report.

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