Equities extended Thursday's selloff on Friday as investors pared risk positions and priced in more aggressive increases and weaker company profits. The Dow Jones industrial average and the S&P 500 both dropped 2.8 percent while the NASDAQ fell 2.6 percent.
Several major sell-side firms are now calling for a 50 basis point rate increase at the Federal Reserve's policy meeting on May 3-4, followed by 75 basis point moves in June and July. One analyst called 75 the new 25, referring to past expectations for the Fed to raise rates in modest increments of 25 basis points. Gloomy equity market sentiment persisted despite dip-buying which reversed a selloff in US Treasuries that saw the US 2-year note yield up by 14 basis points in the morning but unchanged in the afternoon.
A plus for sentiment was the broad decline in commodities prices fueled by concern over a big slowdown in Chinese demand for commodities owing to its anti-Covid lockdowns in some cities.
Bad earnings reports added to the bearish sentiment, including HCA, the health care provider, down 22 percent after cutting its earnings guidance due to rising labor costs. Verizon dropped 5.6 percent after warning its earnings would take a hit from rising costs and declining usage. American Express lost 2.8 percent as the market was not impressed by its earnings and revenues beats.
Among sectors, consumer staples fared best as a defensive play and as investors see rising prospects for recession. Among Dow stocks, other top losers included Caterpillar, down 6.6 percent, and Nike, down 4.8 percent.
These price data reflect observations at 4:00 PM US ET: Dated Brent spot crude oil fell US$1.78 to US$106.22 while spot gold dipped US$18.06 to US$1,933.81. The US dollar rose vs. most major currencies in a flight from risk. The US Treasury 30-year bond yield rose 3 basis points at 2.95 percent and the 10-year note yield lost 1 basis point to 2.89 percent.
Hawkish comments from European Central Bank and Fed officials spurred investors to step up rate hike expectations and heavy selling in equities. The Europe-wide STOXX 600 fell 1.8 percent, the German DAX dropped 2.5 percent, the French CAC lost 2.0 percent and UK FTSE 100 was down 1.4 percent.
Investors also appear preoccupied by the hit to corporate earnings from rising inflation and interest rates alongside disruptions flowing from the Ukraine crisis and China's strict anti-Covid measures. Investors also reacted badly to soft UK economic data and comments from Bank of England Governor Andrew Bailey on the likely hit to consumer spending from rising prices.
Among sectors in the STOXX 600, worst were basic materials, down more than 8 percent on concern over falling Chinese demand. Other laggards included health care, travel & leisure, and financial services, all down more than 3 percent on the day. Holding up best were construction & materials, banks, and industrials.
Asia-Pacific equities were mostly weaker on carry-over from Wall Street's selloff on rising rate fears. Mainland China managed modest gains for the day but still ended much lower on the week.
Chinese markets recovered from the day's opening lows after more talk of official support, including People's Bank of China Governor Yi Gang's pledge to help small businesses. China's CSI 300 rose 0.4 percent, the Shanghai index firmed 0.2 percent, but Hong Kong's Hang Seng index eased 0.2 percent.
Japanese equities gave back much of the week's gains on read-through from Wall Street's drop on Thursday. Investors remained focused on rising US interest rates and hawkish comments from Federal Reserve officials. Japan's Nikkei 225 fell 1.6 percent and the TOPIX lost 1.2 percent.
Tech stock weakness hit South Korean equities, with the KOSPI down 0.9 percent and the Taiwan Taiex down 0.6 percent. The BSE Sensex fell 1.2 percent on worries the Fed is set to raise rates more aggressively than investors anticipated.
Hawkish Fed comments and worries about slowing Chinese demand for commodities hit Australian equities hard, with the All Ordinaries index off 1.5 percent. Materials, information technology, energy, and financials led a broad selloff. Holding up best were defensive plays including health care and consumer staples.