Damian J. TROISE and ALEX VIEGA (AP Business Writers)
Stocks lost ground on Wall Street in afternoon trading Friday as concerns grew that the Federal Reserve and other central banks are ready to trigger a recession if that’s what it takes to get inflation under control.
The S&P 500 was down 1.6% as of 1:43 p.m. ET, heading for its second straight weekly loss. The Dow Jones industrial average fell 499 points, or 1.5%, to 32,703, while the Nasdaq fell 1.4%.
Losses were extensive. More than 90% of companies in the benchmark S&P 500 index declined. Technology and health care stocks were among the biggest losers. Microsoft fell 1.9% and Pfizer fell 3.3%.
This week, the Fed raised its forecast for how high it will eventually take interest rates, and tried to dash some investors’ hopes that a rate cut could come next year. In Europe, the central bank looked even more aggressive in the eyes of many investors.
“Inflation is still the monster in the room,” said Liz Young, head of investment strategy at SoFi.
Inflation is coming down from its hottest levels in decades, but remains very high. This led the Fed to continue its aggressive attack on prices, raising interest rates to slow economic growth. The strategy increasingly threatens to hit the brakes too hard and send the already sluggish economy into recession.
“It is not yet known whether the recession is mild, moderate or deep,” Young said.
A mixed report from S&P Global on Friday highlighted the risk of a recession. It showed business activity slowed more than expected this month as inflation weighs on companies. It also notes that this is the sharpest drop since May 2020, but inflationary pressures are also easing.
“In short, the survey data suggest that the Fed’s rate hikes are having the desired effect on inflation, but economic costs are rising and, accordingly, the risks of a recession are rising,” said Chris Williamson, chief economist at S&P Global Market Intelligence.
Markets in Europe fell, while markets in Asia were mostly lower.
Bond yields were mostly lower. The yield on the 10-year Treasury note, which influences mortgage rates, rose to 3.47% from 3.45% late Thursday. The yield on two-year Treasuries, which closely tracks expectations for Fed moves, fell to 4.17% from 4.24% late Thursday.
The Fed ended its last meeting of the year on Wednesday by raising short-term interest rates by half a percentage point, marking the seventh straight increase this year. Wall Street had hoped the central bank would signal an easing of rate hikes by 2023, but instead the Fed said otherwise.
The federal funds rate is in the range of 4.25% to 4.5%, the highest level in 15 years. Fed policymakers predict that the central bank rate will reach a range of 5% to 5.25% by the end of 2023. Their forecast does not foresee a rate cut before 2024.
Several companies pared wider losses on Friday after reporting strong financial results and forecasts. Software maker Adobe rose 3.3% after beating Wall Street’s fourth-quarter earnings estimates. United States Steel rose 4.2% after giving investors a strong profit forecast.
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Elaine Kurtenbach and Matt Ott contributed to this report.
