U.S. stocks faced a downward trajectory on Friday, with the Nasdaq leading the decline, following the release of a hotter-than-expected producer prices report that dampened hopes for imminent interest rate cuts by the Federal Reserve.
According to a report from the Labor Department, producer prices surged more than anticipated in January, raising concerns that inflationary pressures might be intensifying after a period of subdued activity. The release of this data comes after a week marked by volatile market reactions to inflation figures and retail sales data.
Carol Schleif, chief investment officer at BMO family office, commented, “The inflation data this week are definitely going to keep the Fed at least on pause until summer. Data is bumpy, it’s not a straight line.”
The prospect of delayed rate cuts prompted a spike in Treasury yields, as traders adjusted their expectations for the timing of Fed action. Greg Bassuk, Chief Executive Officer at AXS Investments, remarked, “The theme of higher for longer is really the continuing market narrative for interest rates.”
Despite the disappointing data, two Federal Reserve officials expressed caution about the economic outlook. Atlanta Fed President Raphael Bostic emphasized the need for further evidence that inflationary pressures are easing before considering rate cuts, while San Francisco Fed President Mary Daly highlighted the importance of ensuring stable prices despite recent progress.
Major indices closed lower, with the S&P 500 shedding 24.18 points, or 0.49%, to end at 5,005.15 points, and the Nasdaq Composite dropping 132.38 points, or 0.83%, to 15,775.65. The Dow Jones Industrial Average also experienced a decline, falling 149.48 points, or 0.39%, to 38,623.64.
Among megacap stocks, Meta Platforms witnessed a 2.2% decrease, dragging down the S&P 500 communication services index by 1.56%. However, Applied Materials saw a notable increase of 6.4% after forecasting better-than-expected second-quarter revenue, driven by strong demand for advanced chips used in artificial intelligence.
Vulcan Materials also contributed to sector gains, rising by 5.2% after forecasting a higher full-year profit, which bolstered the S&P 500 materials sector index. Conversely, Roku tumbled by 23.8% after forecasting a larger first-quarter loss, while Coinbase Global surged by 8.8% following its first quarterly profit since 2021.
In other developments, DoorDash experienced an 8.1% drop after forecasting a quarterly profitability metric below expectations, attributed to increased labor costs.
Overall, declining issues outnumbered advancers on both the NYSE and Nasdaq, with the S&P 500 registering 63 new 52-week highs and 3 new lows, while the Nasdaq recorded 225 new highs and 66 new lows.
Market activity remained robust, with 11.18 billion shares changing hands on U.S. exchanges compared to the 11.65 billion moving average for the last 20 sessions.
The recent volatility underscores the challenges faced by investors in navigating evolving economic data and Fed policy expectations in an increasingly dynamic market environment.