Stocks dropped Friday, with the S&P 500 heading for a fourth
consecutive weekly decline, as investors weighed another inflation report that
showed how fast prices are rising and data that showed Germany’s economy
contracted more than expected at the end of last year.
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The S&P 500 fell 0.6 percent in early trading, a drop that —
should it hold — would leave the index in a correction, which is Wall Street’s
label for a drop of 10 percent from its recent high, and a marker of investors’
swiftly changing attitude about the prospects for the economy.
“A correction signifies that the economy has really lost
momentum,” said Edward Moya, a market analyst at OANDA, a foreign currency
exchange and brokerage firm. “We’re seeing fear in the market because there’s
concerns that the economy is going to be struggling going forward.”
The S&P 500 has zigzagged between gains and losses
throughout the week — with moves of as much as 4 percent during a single day —
as investors try to assess how much the Federal Reserve is likely to raise
interest rates to combat inflation. Friday was no exception: Trading began with
a small gain for stocks before falling back.
The turbulent trading came after a report from the Labor
Department on Friday showed that personal consumption expenditures index, an
inflation gauge that’s closely watched by the Federal Reserve, rose 5.8 percent
in December, up from 5.7 percent the prior month. It is the fastest reading
since 1982.
The Stoxx Europe 600 fell about 1.3 percent. Germany’s economy
shrank 0.7 percent in the fourth quarter of last year, hampered by a rise in
omicron cases and supply chain bottlenecks.
Wall Street is virtually certain that the central bank will
start its rate increases in March, but the question is by how much, and how
often will it do so.
On that front, some of the data released Friday could have been
read as a positive. The Employment Cost Index, a measure of wages and salaries,
rose 1 percent for the three months ending in December. That’s a slowdown in
the pace of increase from the previous three months and lower than the rate
economists had expected.
But there are other concerns weighing on stock prices. Companies
are forecasting further headwinds this year as wages rise and supply chain
bottlenecks persist, and the combination of these elements has raised fear on
Wall Street of a drop in economic growth, corporate profits and the longer-term
appetite for stocks.
Investors, who were initially spooked by a big jump in
government bond yields — a bench mark of borrowing costs across the economy —
and then disappointed by corporate earnings reports or forecasts for the year
ahead from companies as varied as Goldman Sachs and Netflix.
On Thursday, for example, shares of electric vehicle-maker Tesla
slid more than 11 percent, weighing on the broader S&P 500, after the
company said that supply chain problems would put a constraint on production in
the coming year. Tesla fell another 2.7 percent Friday.
“The markets have had a lot of information has thrown at them,”
said Fiona Cincotta, senior financial markets analyst at Forex.com. “That PCE
is pretty bad news because it tells us that inflation was still rising in
December,” she said of the personal consumption expenditures index.
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