Stocks spent most of the day in positive territory Friday as Treasury yields retreated. The major indexes lost steam, however, as investors continued to fret about higher-for-longer interest rates and took in new developments on the United Auto Workers (UAW) strike.
At the close, the Dow Jones Industrial Average was down 0.3% at 33,963, while the S&P 500 (-0.2% at 4,320) and the Nasdaq Composite (-0.1% at 13,211) were also modestly lower. All three indexes ended Friday with substantial weekly losses as concern over the Federal Reserve's future monetary plans sent Treasury yields to a nearly two-decade high.
Specifically, while the Fed on Wednesday kept interest rates unchanged, it left open the door to another quarter-point rate hike this year and indicated it will keep rates higher for longer in order to bring down inflation.
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Earlier today, Boston Fed President Susan Collins and Fed Governor Michelle Bowman both signaled support for tighter monetary policy to combat still-too-high inflation.
However, Douglas Porter, chief economist, at BMO Economics isn't too worried about more rate hikes. "There's plenty more economic data to go before the next meeting, and new risks are emerging for the growth outlook," Porter says. "Overall, we believe short-term rates are now restrictive enough to do the job, and the pronounced back-up in long-term yields adds another layer of tightening."
Higher prices weigh on PMI data
In today's economic news, purchasing managers index (PMI) data from S&P Global showed activity in the services sector grew at a more moderate pace than was expected. Additionally, activity in the manufacturing sector contracted at a slower rate than economists were anticipating.
"Weighing most on both figures were contractions in ordering, as consumers balked at higher prices," says José Torres, senior economist at Interactive Brokers. "Loftier prices were driven mainly by increases in compensation outlays, interest costs, materials expenses and fuel charges."
Ford stock pops on strike negotiation progress
Meanwhile, the UAW said it expanded its strike to 38 General Motors (GM, -0.4%) and Stellantis (STLA, +0.2%) plants across 20 states. The union said it will not strike at any additional Ford Motors (F, +1.9%) plants for the time being, as negotiations between the two sides are making progress, according to UAW President Shawn Fain.
Next week has the potential to be a volatile one, given it marks the end of both the month and the quarter. The Friday morning release of the personal consumption and expenditures (PCE) index – the Fed's preferred measure of inflation – and increasing chatter surrounding a potential government shutdown could keep investors on their toes.
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