Volatility continued to rule Wall Street on Friday, with the Dow plunging more than 500 points as investors reckoned with growing inflation fears and concerns that Russia could soon invade Ukraine.
Despite a positive start to the trading day, all three indexes reversed course in the afternoon after White House national security adviser Jake Sullivan warned there was a “distinct possibility” of military action within a “very swift time frame.”
At the market’s close, the tech-heavy Nasdaq had fallen 394 points, or 2.7%, to end at 13,791. The S&P 500 index had shed 85 points, or 1.9%, to settle at 4,418. The Dow Jones industrial average dropped 504 points, or more than 1.4%, to close at 34,737.
Growing tensions sent oil prices higher, with West Texas Intermediate crude, the U.S. benchmark, jumping nearly 4.3% to roughly $93.75 a barrel. Brent crude, the global benchmark, climbed almost half a percent to $94.88.
“The Russia-Ukraine tensions have hovered over already shaky investor sentiment,” said John Lynch, chief investment officer for Comerica Wealth Management. “Investors have been counting on a diplomatic resolution, but recent developments indicate this may be wishful thinking and therefore, not fully priced into the markets.”
Bond yields also surged as investors priced in rate hikes, with the yield on the 10-year U.S. Treasury note sailing past 2% to a multiyear high, before edging down slightly to 1.955%.
After starting the week on a high note, investor mood turned dour Thursday after the Labor Department reported the largest annual inflation spike since February 1982, fueling speculation the Federal Reserve could move more aggressively than expected to raise interest rates.
Such action is the Fed’s best tool to bring down prices, but the tangle of pressures surrounding and influencing inflation — explosive demand, a supply chain in chaos, a topsy-turvy labor market — will not be immediately resolved by shifts in monetary policy. In the meantime, the raising of rates will limit business activity, which often hits stocks, especially those of highflying companies, hard.
“The market volatility from January is not over and we expect continued choppiness as investors weigh the prospect of a more aggressive Federal Reserve in the face of rising inflation,” Richard Saperstein, chief investment officer of Treasury Partners, said Friday in comments emailed to The Post.
Bond yields surged as investors priced in rate hikes, with the yield on the 10-year U.S. Treasury note sailing past 2% to a multiyear high before edging down slightly to 1.983%.
The three major U.S. indexes remain in negative territory for 2022: the Nasdaq, which has been hit hard as investors rotated away from pricey tech stocks, is down nearly 12% year to date according to MarketWatch. The S&P 500 has erased more than 7% this year, and the Dow more than 4%.
Cboe’s VIX, dubbed Wall Street’s fear gauge, has jumped 33% in the past month.
Consumer sentiment declined a whopping 8.2% from December to January, according to the University of Michigan’s consumer confidence index, as households confronted the burdens of inflation just about everywhere. Spiking costs of food, electricity and shelter helped drive inflation higher last month, with household furnishings, clothing and medical care becoming costlier, while used-car costs continued to climb, albeit at a slower pace than in prior months. The surging costs have all but wiped out wage gains many employers have offered in a tight labor market.
“Inflation remains the greatest concern for consumers,” Jim Baird, chief investment officer at Plante Moran Financial Advisors, said Friday in comments emailed to The Washington Post. “Understandably so as upward pressure on prices for a wide range of goods and services has shown little evidence of abating.”
Sentiments had been improving before the inflation report, as investors priced in the likelihood of several rate hikes and processed a string of economic data that suggested omicron cast less of a shadow over the economy than many had feared. Now, the hot inflation report has given Wall Street plenty more to worry about. Stocks, especially those in the tech sector, tend to benefit from lower rates as some investors look past higher upfront costs to the likelihood of hefty profits down the line.
“Markets are not erring on the side of hope and are pricing in plenty more hikes in the second half of the year on the belief that the central banks will once again prove too optimistic,” Craig Erlam, senior economic analyst with OANDA, said Friday in comments emailed to The Post. “While that may lead to plenty more instability in the stock markets over the next couple of months, it could become a useful tail wind in the second half of the year if inflation does fall considerably.”
Corporate earnings have been at the center of recent swings as investors looked for signs of inflation weighing on bottoms lines, with performances from big names sparking steep sell-offs and big rallies. A disappointing earnings report from Meta Platforms last week sparked a sell-off that erased roughly $230 billion in market value, a record for a U.S. company. A day later, Amazon’s value swelled by $191 billion, also a record, after it reported blockbuster fourth-quarter revenue, lifting tech and other sectors alongside it. (Amazon founder Jeff Bezos owns The Washington Post.)
Zillow’s shares soared more than 13% in midday trading, even after the company reported losing $881 million on its shuttered home-flipping business last year. Revenue in its core segment climbed 30%, Zillow said, boosted by the demands of a fiery housing market.