Why did the stock market fall? Dow ends nearly 1,000 points lower in worst day since October 2020

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U.S. stocks fell sharply on Friday to suffer their biggest one-day drop since 2020, as investors continued to weigh hawkish comments on interest rates a day earlier by Federal Reserve Chairman Jerome Powell , as well as another batch of corporate earnings that largely disappointed.

How did the stocks trade?
  • The Dow Jones Industrial Average DJIA,
    -2.82%
    fell 981.36 points, or 2.8%, to close at 33,811.40, after falling 1,019 points to a session low. The blue-chip gauge saw its biggest one-day percentage loss since October 28, 2020.

  • The S&P 500 SPX,
    -2.77%
    fell 121.88 points, or 2.8%, to end at 4,271.78.

  • The Nasdaq Composite COMP,
    -2.55%
    ended at 12,839.29 after falling 335.35 points, or 2.6%. The S&P 500 and Nasdaq each suffered their biggest one-day decline since March 7.

The Dow and S&P 500 posted their lowest results since March 15 on Friday, while the Nasdaq closed at its lowest since March 14.

On Thursday, stocks gave up strong gains, reversing sharply lower. With Friday’s plunge, the Dow Jones suffered a weekly decline of 1.9%, its fourth consecutive loss. The S&P 500 fell 2.8% and the Nasdaq fell 3.8% for their third consecutive weekly decline.

What drove the market?

Stock market weakness picked up on Friday where Thursday’s selloff left off, as stocks tumbled in the afternoon after Powell added support for an accelerated rate hike to calm the inflation, measures that would include a possible 50 basis point interest rate hike in May.

“It would seem that investors have been too complacent about the next [Fed] meeting, which will have to change,” Michael Kramer, founder of Mott Capital, said in a note.

The Cboe VIX volatility index,
+24.38%,
an option-based measure of expected volatility over the next 30 days, had been too low ahead of the May 3-4 Federal Open Market Committee, or FOMC, meeting, Kramer said. It rose on Thursday and was up another 19.5% to 27.1- on Friday, rising above its long-term average just below 20.

Powell’s remarks appeared to make a half-point rate hike the base case scenario, with the central bank also likely to announce the start of its balance sheet unwind, Kramer said.

Meanwhile, fed funds futures traders have priced a 94% chance that the Federal Reserve will hike rates by 75 basis points in June, down from 70% on Thursday and 28% a week ago. , according to the CME FedWatch Tool.

Stocks pared their losses somewhat in afternoon activity after Cleveland Fed President Loretta Mester in a TV interview said she remained supportive of 50% rate increases. points, but did not see the need for the “shock” of a 75 basis point increase. The rebound proved to be short-lived, however, with shares falling to new session lows before the closing bell.

The benchmark 10-year Treasury yield TMUBMUSD10Y,
2.895%,
meanwhile, fell slightly to around 2.89% after climbing around 8.1 basis points to 2.917% on Thursday, the highest since Dec. 4, 2018.

Lily: How to invest as inflation, rising interest rates and war disrupt markets

The Fed’s hawkish turn and relentless rise in Treasury yields could undermine the previous allure of equities, which were previously seen as the only viable avenue for many yield-seeking investors.

“Investors seem to be moving away from the TINA (There is no alternative) narrative lately when it comes to stocks,” Brian Price, head of investment management at Commonwealth Financial Network, said in a statement. note. “This is the second week in a row of significant equity mutual fund outflows and days like today are unlikely to change sentiment going forward. Perhaps the only bright spot is that the sentiment has become too bearish and that we may see a counter trend recover at some point in the coming weeks.”

In a graph: Investors just pulled $17.5 billion out of global stocks. They’re just getting started, says Bank of America.

The 11 major sectors of the S&P 500 fell on Friday, with healthcare falling 3.6% after a pessimistic earnings forecast from HCA Healthcare Inc. HCA,
-21.82%
drops its shares by 21.8%. Other hospital operators, including Tenet Healthcare Corp. THC,
-15.65%,
Community Health Systems Inc. CYH,
-17.93%
and UHS Universal Health Services,
-13.96%
also fell between 14% and 17.9%.

However, of the 99 S&P 500 companies that reported first-quarter earnings, 77.8% beat market expectations. Typically, 66% of companies exceed estimates, according to data from Refinitiv.

Next week will mark another big week for earnings, with 558 companies reporting, Saxo noted. “This is the great test of companies’ ability to pass costs on to their customers,” they said.

Investors could also be nervous ahead of the final round of the French presidential election on Sunday. An upset victory for far-right candidate Marine Le Pen over incumbent President Francois Macron would likely trigger market volatility, analysts say.

To see: Here’s how the markets are positioning themselves for Sunday’s presidential election in France between Macron and Le Pen

Which companies were targeted?
  • Gap inc.
    gps,
    -17.98%
    the stock fell 18%, following a bigger-than-expected drop in sales and as the retailer announced the departure of Old Navy CEO Nancy Green.
  • Shares of Qualtrics International Inc.
    XM,
    -10.52%
    fell 10.5% after the experience management software company reported higher-than-expected first-quarter revenue.

  • Snap inc.
    INSTANTANEOUS,
    +1.16%
    shares rose 1.2% after the social media group reported quarterly revenue below Wall Street expectations.
  • Shares of American Express Co.
    AXP,
    -2.80%
    fell 2.8% after beating earnings forecasts on Friday amid a continued rebound in travel and strong spending trends among younger consumers.

  • Verizon Communications invs. VZ,
    -5.64%
    fell 5.6% after its earnings report showed a net loss of postpaid phone subscribers in its most recent quarter, calling for “competitive dynamics within the industry”, although it said it had its best quarter of broadband net additions in more than a decade.
How have other assets traded?
  • The ICE US Dollar Index DXY,
    +0.54%
    rose 0.5% to trade at its highest level since March 2020.

  • BitcoinBTC USD,
    -0.27%
    fell 4.5% to trade near $39,400.

  • The American oil benchmark CL.1,
    -1.97%
    fell $1.72, or 1.7%, to settle at $102.07 a barrel on the New York Mercantile Exchange, down 4.1% for the week.

  • Gold GC00,
    -0.81%
    fell $13.90, or 0.7%, to settle at $1,934.30 an ounce, leaving a weekly decline of 2.1%.

  • The Stoxx Europe 600SXXP,
    -1.79%
    fell 1.8% as London’s FTSE 100 UKX,
    -1.39%
    down 1.4%.

  • The Shanghai Composite SHCOMP,
    +0.23%
    rose 0.2%, while the Hang Seng HSI index,
    -0.21%
    slid 0.2% in Hong Kong and Japan Nikkei 225 NIK,
    -1.63%
    down 1.6%.

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