U.S. stock indexes drifted mostly lower Friday as investors weighed a sharp drop in consumer sentiment and a pickup in near-term inflation expectations as they continued to assess data released a day earlier showing consumer prices rose at the fastest pace in 40 years.
The Dow Jones Industrial Average
fell 57 points, or 0.2%, to 35,185.
The S&P 500
was down 22 points, or 0.5%, at 4,482.
The Nasdaq Composite
fell 120 points, or 0.8%, to 14,065.
Friday’s fall turned the S&P 500 lower for the week, down 0.4%, while the Nasdaq Composite was headed for a 0.2% weekly fall; the Dow remained up 0.3%.
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
Stocks opened with a modest push to the upside, but saw early gains trimmed or erased after 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.
Also, the survey 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%.
Meanwhile, Thursday’s developments continued to reverberate. The Labor Department reported that consumer prices jumped 7.5% in the 12 months ending January, as St. Louis Fed President James Bullard talked about his willingness for the central bank to start with a 50-basis point hike in March — or possibly even a rate hike before its next scheduled meeting.
That lifted the 2-year Treasury yield
by 21 basis points — the largest single-day rise since June 5, 2009. Stocks extended declines Friday as yields resumed an upward march.
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.
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.
Companies in focus
The yield on the 10-year Treasury note
rose 3 basis points to 2.059%. Yields and debt prices move opposite each other.
The ICE U.S. Dollar Index
a measure of the currency against a basket of six major rivals, rose 0.2%.