U.S. stocks moved lower early Friday
after losing ground on Thursday as as investors weighed the latest batch of corporate earnings and the question of how aggressively central banks will raise interest rates to moderate inflation.
The S&P 500 fell 29.38 points, or 0.8%, to 3665.78 near the end of the trading day. The tech-focused Nasdaq Composite dropped 65.66 points, or 0.6%, to 10614.84 and the Dow Jones Industrial Average lost 90.22 points, or 0.3%, to 30333.59.
The U.S. employment market remains strong, with the latest government data showing the number of Americans applying for unemployment benefits fell last week and remains historically low.
The healthy jobs market is a sticking point since it suggests the Fed will have to persist in raising interest rates. The central bank has raised its key interest rate to a range of 3% to 3.25%. Just over six months ago, it was near zero.
The increases are putting pressure on other areas of the economy, including the housing market, where mortgage rates are now at 15-year highs. Mortgage buyer Freddie Mac reported Thursday that the average on the key 30-year rate ticked up this week to 6.94% from 6.92% last week.
The Federal Reserve has raised interest rates five times this year and is likely to increase its benchmark federal-funds rate by another 0.75 percentage point at its meeting next month as it tries to bring down high inflation.
“At the moment, we keep getting upside surprises on inflation everywhere you look,” said Hugh Gimber, a strategist at J.P. Morgan Asset Management. “No one really has a good grasp yet of where the central banks — particularly the Fed — are going to be able to stop.”
The uncertainty around both inflation and the extent of the Fed’s monetary tightening is at the core of what’s been weighing on markets in recent days, according to Arthur Laffer Jr., president of Laffer Tengler Investments, a Nashville, Tenn.-based registered investment adviser that manages more than $1 billion in assets.
“Markets are a little bit stunned that the Fed has shown that it’s going to stay the course at least through year-end,” Laffer said. “If these inflation numbers don’t come down and they don’t come down consistently over several months, you are not going to get a pivot anytime soon.”
Stocks have been volatile in recent sessions, buoyed by a batch of mixed though better-than-expected earnings results. Still, some investors believe that earnings expectations are too high across the board and a downward recalibration is likely ahead.
Meanwhile, Asian shares were mostly lower Friday in muted trading, as investors kept an eye on inflation and awaited the outcome of a Communist Party congress in China. Benchmarks fell in most regional markets but rose in Mumbai.
In other developments, Japan’s core consumer prices rose 3.0% in September from a year earlier, according to government data released Friday. That was the highest increase in eight years. It would also have been the highest in more than 30 years if the impact of introducing and raising the consumption tax was excluded.
The Bank of Japan has kept an ultra-low interest rate policy, while the Federal Reserve and other central banks have been raising rates to counter surging prices. Until recently, the Japanese central bank had devoted its efforts to fending off deflation, or the continued downward spiraling of prices.
Japan’s benchmark Nikkei 225 declined 0.4% in afternoon trading to 26,892.67. Australia’s S&P/ASX 200 shed 0.8% to 6,676.80. South Korea’s Kospi edged down 0.3% to 2,212.61. Hong Kong’s Hang Seng fell 0.8% to 16,157.32, while the Shanghai Composite gained 0.2% to 3,041.21. Shares rose 0.4% in Mumbai.
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