The major Wall Street indexes declined on Friday and were expected to decrease for the week as concerns about interest rates remaining high longer were stoked by hawkish remarks from Federal Reserve officials. In an interview with Reuters, Mary Daly, president of the San Francisco Fed Bank, stated that two additional rate hikes this year are a "very reasonable" estimate, but she also referred to the need for a more cautious approach.
Her remarks came after Fed Chair Jerome Powell took a hawkish posture during his two-day testimony before the Senate Banking Committee earlier this week.
Following Powell's statement that the Fed will proceed cautiously, the markets briefly stabilized, and the S&P 500 and the Nasdaq added modest gains the following day.
With their worst weekly performance since the bank panic in March, the indices were still on track to reverse several weeks of gains.
The advance of the last three or four weeks is beginning to show a little bit of a pullback. The various Fed governors, including Powell, have spoken in the past about raising interest rates, according to Paul Nolte, senior wealth advisor, and market strategist at Murphy & Sylvest.
The yield curve is still becoming more inverted. In turn, this is exerting some negative pressure on stocks. According to CME Group's FedWatch tool, money markets are still anticipating only one further rate hike of 25 basis points (bps) in July rather than the two Powell predicted. The 2-year yield, which best reflects expectations for interest rates, decreased to a steady 4.71% on Friday.
Business activity in the United States fell to a three-month low in June, according to S&P Global's Purchasing Managers' Index, as services growth slowed for the first time this year and the manufacturing sector's decline widened. Consumer discretionary and technology were leading decliners, with nine of the 11 major S&P 500 sectors trading in the negative.
The tech-heavy Nasdaq was under pressure as market giants like Tesla, Apple, and Microsoft were down between 1% and 3.5%.
At 9:55 a.m. the Nasdaq Composite was down 160.32 points, or 1.18%, at 13,470.29, the S&P 500 was down 33.00 points, or 0.75%, and the Dow Jones Industrial Average was down 171.05 points, or 0.50%, at 33,775.66.
Following a $10.3 billion deal with numerous U.S. public water utilities to resolve water pollution allegations related to "forever chemicals," 3M Co. saw a 2.5% increase. After exceeding market forecasts for the first quarter in earnings thanks to cost savings, Carmax Inc. saw a 9.2% increase.
Starbucks Corp. dropped 1.8% as a result of unions for the coffee chain announcing that 3,500 employees may walk out next week in the United States because the business allegedly forbade Pride month decorations in its cafés. Investors will also be listening for the remarks of several Fed officials who will be speaking later in the day.
On the NYSE and the Nasdaq, declining issues outnumbered advancing issues by a ratio of 2.46 to 1 and 2.45 to 1, respectively. The Nasdaq posted seven new highs and 62 new lows, compared to the S&P index's six new 52-week highs and four new lows.
