Stocks sway as Wall Street heads for first down week in four

NEW YORK –

Stocks are mixed Friday and Wall Street is headed for its first losing week in four. Investors are expecting the Federal Reserve to increase its pressure on the economy to lower inflation.

The S&P 500 was 0.1% higher in afternoon trading after earlier drifting between small losses and gains. The Dow Jones Industrial Average rose 244 points to 34,828, or 0.7%, as of 2:05 p.m. Eastern. The Nasdaq composite was 0.8% lower as technology stocks lag the market.

The S&P 500 remains on track for a loss of 1% this week. Stocks have fallen as the Federal Reserve moves more aggressively to combat inflation by raising short-term rates and making other moves. It’s a dramatic reversal from the policy of keeping rates at historic lows to stimulate and sustain the economy through the pandemic.

Investors learned this week from the Fed that they may increase short-term rates by twice as much as usual at future meetings. This was also true last month. This happened in 2000, the last time it did so. In the minutes of its last meeting, the Fed indicated that it is likely to reduce its huge stockpiles of bonds by as much as $95 billion per month. This could begin as early as next month.

These moves will increase the cost of borrowing for U.S. homeowners and businesses. This would slow the economy and hopefully end the nation’s highest level of inflation in 40-years.

Wall Street is particularly concerned about stocks that are seen as the most costly because of higher rates. Higher rates are associated with higher returns on relatively safe bonds. This makes it less attractive for investors to pay higher prices for more risky assets such as stocks.

The market has been falling because of high-growth stocks and technology companies. Nvidia, Tesla, Amazon and Apple were among Friday’s largest weights, with each dropping at most 1.1%.

The strength of the economy is also causing concern. The Federal Reserve has set rates to rise so aggressively that there is a fear that it will squeak the brakes so hard that the economy will go into recession. Although this is not the consensus on Wall Street’s part, Deutsche Bank economists earlier this week stated that they expect a U.S. recession by the end of next year.

The conflict in Ukraine has made the situation more uncertain, threatening to increase inflation and cause damage to the global economy. Since Russia invaded Ukraine, prices for oil, gas, food and other commodities have been extremely volatile.

Friday’s price of a barrel of U.S. benchmark crude oil rose 1.2% to $97.19. It has fluctuated wildly over the past weeks and briefly reached $130 last month. Brent crude oil, the international standard for oil, increased 1% to $101.58/barrel

The bond market has been the main focus of the market. Expectations for more aggressive Fed action have led to yields at their highest level in three years. The 10-year yield increased to 2.70% from 2.65% in the late hours of Thursday. It was just 1.51% at the beginning of the year.

It could rise further if the Fed stops and reverses its program of buying trillions of dollars worth of bonds.

In a BofA Global Research report, Michael Hartnett, Chief Investment Strategist, wrote that bond buying helped stock prices soar and markets stay relatively calm.

Now, the Fed is less that a month away to reverse that. “by design will be negative”Hartnett said that financial assets should be considered. Hartnett said that this should lead to higher yields on bonds and more volatility in the markets.

COVID-19 continues to slash the economy, especially in China, while COVID-19 continues its work. Residents of Shanghai are restricted from moving and engaging in certain activities due to a rise in infections. These economic effects ripple around the globe.

ACM Research, a supplier to the semiconductor industry, stated that the restrictions will have a significant impact on its revenue. The stock dropped 5.8%.

Airline disruptions in Europe are also due to a rise in COVID-19-related cases. British Airways and easyJet, two major airlines, cancelled about 100 flights Wednesday. Due to the virus, the industry is experiencing staff shortages.

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Yuri Kageyama, AP Business Writer, contributed.