Equities fell nearly across the board Friday after a Federal Reserve official suggested the Fed might act sooner to rein in inflation. The Dow Jones industrial average declined 1.6 percent, the S&P 500 lost 1.3, and the NASDAQ was down 0.9 percent.
St. Louis Federal Reserve President James Bullard told CNBC before the US open that he sees a first interest rate increase in late-2022 as the economy and inflation have outperformed expectations this year. Cyclicals/value bore the brunt of the selloff, with banks hit hardest as the yield curve flattened on the view that the Fed will act to ensure the recent inflation uptick remains transitory, a negative for the reflation trade. The Bullard comments added to perceptions following Wednesday's policy announcement that the Fed is not as dovish as the market believed.
Among sectors, energy, financials materials, and utilities fell the most, with energy down despite rising oil prices. Consumer staples also lagged, with grocery stores and drug stores down. Industrials were in line, with rail and construction and engineering stocks weak. Health care outperformed, along with consumer discretionary, communications services. Tech held up best, with support from software, including Adobe, up 2.6 percent after an earnings beat and better guidance.
Among companies in the news, Lennar, the homebuilder, rose 3.8 percent after an upgrade at JP Morgan. Smith & Wesson, the gunmaker, shot up 17 percent after topping expectations, raising its dividend and announcing new share buybacks. On the downside, EQT, the oil pipeline company, fell 5.5 percent after a downgrade at Morgan Stanley.
These price data reflect observations at 4:00 PM US ET: Dated Brent spot crude oil rose 25 cents to US$73.45 while spot gold fell US$2.97 to US$1,770.05. The US dollar was mostly higher but lower vs. the yen. The US Treasury 30-year bond yield fell 8 basis points at 2.02 percent and the 10-year note yield fell 7 basis points at 1.44 percent.
Hawkish Fed comments added to a selloff in energy and bank stocks to knock equities lower across the board Friday. The Europe-wide STOXX 600 dropped 1.6 percent, the German DAX fell 1.8 percent, the French CAC fell 1.5 percent, and UK FTSE 100 lost 1.9 percent.
Among sectors, commodity-linked stocks finished an abysmal week with more losses, led by declines in industrial metals after China announced more steps aimed at curbing commodities prices. Heavily-weighted oil stocks were hit Friday, with BP down 2.7 percent, and Royal Dutch Shell off 2.5 percent, while commodities giant Anglo American fell 5.1 percent.
Financials sold off as the yield curve flattened on expectations for nearer-term rate increases, weaker near-term growth, and less central bank liquidity. Other cyclicals were hit as stocks that have been propelled by policy stimulus began to be repriced.
Other laggards included technology, autos & parts, insurance, media, and construction & materials. Holding up best but still weaker were health care, real estate, food & beverage, chemicals, and utilities.
Among companies in focus, Tesco, the UK retailer, fell 4.6 percent on disappointing first quarter revenues. Daimler, the automaker, fell 2.4 percent on news it will sell its factory in Brazil. HSBC fell 2.3 percent as it prepares to sell its French retail banking business.
Asia/Pacific equities markets were mixed Friday with growth outperforming value, and regional yield curves flatter in the days since the Federal Reserve policy announcement. US-China conflict remains an overhang as the Biden administration and US regulators are expected to focus increasingly on China.
Chinese markets were mixed with the CSI and the Shanghai composite both ending flat. Tech shares continued to outperform after the government announced plans to invest in a new generation of semiconductors, and as the market appetite for tech stocks has generally rebounded. Energy and consumer firms lagged. Hong Kong outperformed with the Hang Seng index up 0.9 percent on a better showing for health care and tech stocks. Utilities and tech stocks held up best.
Japanese equities slipped with the Nikkei down 0.2 percent and the broader Topix down 0.9 percent. Most sectors declined, with banks, shipping and air transportation, miners, iron & steel, and energy stocks lagging.
Australian markets edged up with the All Ordinaries index up 0.3 percent. Tech outperformed as long terms rates declined and buy-now-pay-later stocks extended the week's rally. Biotech stocks boosted health care. On the downside, weakness in industrial and precious metals weighed on materials while energy stocks suffered as oil continued lower. Another selloff in big banks depressed financials, with Commonwealth Bank of Australia off 2.1 percent.
In economic news, the Bank of Japan said Friday it is maintaining its policy stance, as expected. The bank will also extend the term of its special COVID-19 fund-supplying operations by six months, again, until the end of March 2022 to encourage financial institutions to lend more to needy small businesses.