U.S. stocks end mixed, Dow books longest weekly losing streak since September as traders bet on more Fed rate hikes

U.S. stocks ended mixed Friday, with the S&P 500 and Dow Jones Industrial Average booking modest weekly losses, after hotter-than-expected inflation reports and commentary from Federal Reserve officials spurred investors to bet on more interest-rate hikes by the central bank.

How stocks traded
  • The Dow Jones Industrial Average

    rose 129.84 points, or 0.4%, to close at 33,826.69.

  • The S&P 500

    slipped 11.32 points, or 0.3%, to finish at 4,079.09.

  • The Nasdaq Composite

    shed 68.56 points, or 0.6%, to end at 11,787.27.

For the week, the Dow slipped 0.1%, logging its third-straight weekly decline in the longest such losing streak since September, according to Dow Jones Market Data. The S&P 500 fell 0.3%, booking back-to-back weekly declines for the first time this year, FactSet data show. The technology-heavy Nasdaq rose 0.6% for the week.

What drove markets

The S&P 500 index, which saw a five month high in early February, slipped this week after stronger-than-anticipated inflation data helped fuel expectations that the Federal Reserve could raise its policy rate well above 5% and keep it there until at least early 2024.

The stock market appears to be adjusting to the idea that the Fed might be “tighter for longer,” said John Bailer, deputy head of equity income at Newton Investment Management, in a phone interview Friday. “The Fed needs to dampen down demand.”

While the central bank has been tightening its monetary policy to cool consumer demand for goods and services and bring down inflation, the stock market had been looking ahead to a potential pause in the Fed’s interest-rate hikes later this year.

Markets stumbled after the release of the producer-price index for January on Thursday, which showed wholesale prices accelerated by 0.7% last month, the sharpest increase since the summer. The January CPI report, released earlier in the week, showed that prices paid by consumers failed to moderate as much as expected.

Speaking in Tennessee Friday morning, Fed Gov. Michelle Bowman expressed concern that inflation isn’t subsiding quickly enough, which means the Fed must continue hiking interest rates. “I don’t think we’re seeing what we need to be seeing, especially with inflation,” Bowman said.

The U.S. labor market has appeared strong in the face of rate hikes, with a low unemployment rate, but there also have been signs of a slowing economy. The Conference Board said Friday that its U.S. leading economic index fell 0.3% in January for a 3.6% decline over the past six months. That was in line with forecasts from economists polled by the Wall Street Journal.

Read: U.S. January leading economic index falls for 10th straight month

The tech-heavy Nasdaq, which outperformed the Dow and S&P 500 this week, has jumped 12.6% so far this year, according to FactSet data. That compares with a year-to-date rise of 6.2% for the S&P 500.

The Dow and S&P 500 booked modest weekly losses after market-based chances of a rise in the Fed’s benchmark rate in June have risen substantially this week. The probability of a June increase in the Fed’s policy rate was seen as negligible as recently as earlier this month, according to trading in fed-funds futures.

Economists at Bank of America and Goldman Sachs have adjusted their forecasts to include additional 25 basis-point hikes in March, May and June. That would bring the Fed’s terminal rate to a range of between 5.25% and 5.5%.

Richmond Fed President Tom Barkin said Friday that he likes 25-basis point moves because it gives the central bank flexibility, according to media reports on his conversation with reporters after a speech in Northern Virginia.

Read:Fed’s Barkin backs sticking with 25-basis-point hikes in the future

The Fed probably won’t cut rates until it has “squeezed inflation out of the system for good,” said Christopher Smart, chief global strategist at Barings, in a phone interview Friday. “The second-to-last thing the Fed wants to do is to cause a deep recession,” he said. But “the last thing they want to do is to cut rates and then have inflation take off on them again.”

Meanwhile, Treasury yields have advanced this week. The yield on the 10-year Treasury note

saw a weekly rise of 8.4 basis points to 3.827%, increasing for a fourth straight week, according to Dow Jones Market Data.

Smart said he’s expecting “a couple more” interest rate hikes from the Fed and then for the central bank to hold rates at that level most likely through the end of 2023. That’s because inflation will probably come down “more slowly and more erratically over the next few months,” he explained.

While many market analysts have been anticipating a recession this year, expectations for one in the first half of 2023 seem to be getting pushed further out. “We think if we get a recession, it will be relatively mild and relatively short,” said Smart.

U.S. stocks will be closed on Monday in observance of Washington’s Birthday.

Companies in focus
  • Deere & Co.

    shares jumped 7.5% after the maker of agriculture, construction and forestry equipment reported fiscal first-quarter profit and revenue that beat expectations by wide margins, with all segments seeing both higher shipment volumes and higher pricing.

  • DoorDash Inc.

    fell 7.6% after the food delivery merchant reported a much wider fourth-quarter net loss than expected, though the company beat most other Wall Street estimates, including for revenue, orders and its first-quarter forecast.

  • AMC Entertainment Holdings Inc.

    slipped 0.2% after the TV network and streaming services company reported a fourth-quarter profit that was more than double what was expected.

  • AutoNation Inc.

    shares climbed more than 11% after the automotive retailer easily topped profit expectations for its latest quarter while benefiting from higher sales of and prices for new vehicles.

  • DraftKings Inc.

    shares jumped 15.3% after the sports betting firm cleared $800 million in revenue in the fourth quarter, a new record just one quarter after topping $500 million for the first time, as the online-gambling company’s move into new states continues to boost sales.

—Steve Goldstein contributed to this report.