Dow tumbles over 400 points as tech shares lead losses to cap volatile Fed week

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U.S. stock benchmarks headed sharply lower Friday morning, with technology shares highlighting the change in the mood on Wall Street as investors assess the economic impact of the spread of the coronavirus omicron variant and the most recent moves by central banks around the globe.

What’s happening
  • The Dow Jones Industrial Average
    DJIA
    fell 438 points, or 1.2%, to 35,448.

  • The S&P 500
    SPX
    was down 1%, or 46 points, to 4,623.

  • The Nasdaq Composite Index
    COMP
    was trading 130 points, or 0.8% lower at 15,051.

  • For the week, the Dow was set for a weekly skid of 0.9%, the S&P 500 was on track for a 1.6% drop and the Nasdaq Composite Index was on pace for a 3.6% decline over the same period.

On Thursday, the Dow eased 30 points, or 0.1%, to 35898, the S&P 500 lost 0.9%, or 41 points, to 4669 and the Nasdaq Composite slumped 2.5%, or 385 points, to 15180.

What’s driving markets

Wall Street investors are digesting the impact of the Federal Reserve’s recent moves to tighten monetary policy in the face of high inflation as well as the spread of the omicron variant which is leading to some restrictions on consumer activity again as the pandemic’s second year draws to a close.

New York Fed President John Williams, during a CNBC interview on Friday, said he is confident the central bank can get a handle on surging inflation without causing a recession, as some market participants fears.

Those fears were emanating out of the bond market early Friday, with the 10-year Treasury note
BX:TMUBMUSD10Y
yield falling below a closely watched level at 1.40% for the first time since earlier this month. A decline in long-dated Treasury yields often implies that investors are worried about the economic outlook.

The slide in yields comes even though the Fed on Wednesday announced plans to taper its bond purchases at a more rapid clip so that the program ends in March and not June. The central bank also projected three quarter-point interest rate hikes next year as Fed Chairman Jerome Powell said there was a risk of high inflation persisting.

Williams said the economy is now in a unique set of circumstances driven by the COVID pandemic and “looking back at historical episodes” is not the best guide for how the economy will evolve.

Since the Fed meeting, however, trading has been volatile in many markets.

On Thursday, the yield curve, representing the differential between shorter-dated bonds and longer-dates, was flattening and value stocks were outperforming versus momentum, a pattern that is been evident at different times this year when investors expected more hawkish central bank policy.

“Stock markets are ending the week on a downbeat note after central banks around the world largely adopted a more hawkish stance in recent days,” said Craig Erlam, Senior Market Analyst, UK & EMEA, at OANDA.

“Only time will tell whether investors support the moves from central banks this week as much as they initially appeared to. More than a decade of ultra-low interest rates has been kind to investors and the path that many central banks have embarked on makes life a little harder for them, but not nearly as hard as high inflation.”

It isn’t just the Fed responding to faster inflation. Thursday featured rate hikes coming out of Mexico, Norway and the U.K., and the European Central Bank pledging next year to reduce the rate of bond purchases.

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Which companies are in focus?
  • Shares of of General Motors
    GM
    after the abrupt departure of long-time company executive Dan Ammann. Ammann, up until Thursday, was running GM’s self-driving car division, Cruise Automation.

  • Also of note, U.S. Steel X warned of a “temporary slowdown” in orders during the fourth quarter.

  • Rivian Automotive RIVN shares slumped after its first quarterly report as a public company.

How are other assets faring?
  • The ICE U.S. Dollar Index DXY, a measure of the currency against a half-dozen other monetary units, was down 0.6% after Europe’s central bank moves.

  • In oil futures, West Texas Intermediate crude CL00, for January CLF23 delivery rose 2.1% to end at $72.38 a barrel.

  • Gold futures GC00 for February delivery GCG22 was rising 0.5%, to trade at $1,808 an ounce, hanging around its highest settlement since Nov. 22.

  • The Stoxx Europe 600 Index SXXP traded1.1% lower, while London’s FTSE 100 Index UKX was off 0.2%.

  • In Asia, the Shanghai Composite Index SHCOMP lost 1.2%, while the Hang Seng Index HSI fell by 1.2% in Hong Kong. China’s CSI 300 000300 skidded 1.6% lower on Friday. Japan’s Nikkei 225 Index NIK declined 1.8%.

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