The stock market experienced another tumultuous week as investors weighed the impact of rising interest rates and the latest round of earnings reports. The Nasdaq ended lower on Friday as growth stocks, particularly in the tech sector, took a hit from rising Treasury yields. Meanwhile, the Dow and S&P 500 were lifted by a rally in energy stocks as oil prices climbed.
Higher Bond Yields Adversely Affecting Growth Technology Companies
According to Sam Stovall, the chief investment strategist at CFRA Research, “investors are wondering what the bond market is telling us that economic indicators are not telling us. Higher bond yields are going to more adversely affect the higher growth technology companies.” The Russell 1000 Growth index, which houses many large-cap growth names, fell 0.33%.
Fed Comments and Earnings Reports Dominate the Week
The recent strong performance by stocks in January was overshadowed this week by hawkish commentary from U.S. Federal Reserve officials and earnings reports from more than half of the S&P 500 constituents. The Nasdaq posted its first weekly fall this year, down 2.41%, while the S&P 500 ended the week lower 1.11% and the Dow Jones lost 0.17%.
Worries about How Much Higher Interest Rates May Need to Climb
Strong jobs data and comments from Federal Reserve Chair Jerome Powell have raised concerns about how much higher interest rates may need to climb. As Kevin Rendino, the chief executive of asset manager 180 Degree Capital, explains, “what has been going on for the last few days is that every other day there is a Fed governor going to talk hawkish.” Investors are now waiting for January consumer inflation data next week to get a clearer picture of the Fed’s rate-hike path.
Energy Sector Jumps as Oil Prices Climb, Consumer Discretionary Falls
Most of the 11 major S&P 500 sectors edged higher. The energy sector jumped 3.92% as oil prices climbed on Russia’s plans to cut crude supplies, while the consumer discretionary sector fell 1.22%. More than half of the firms listed on the S&P 500 have reported earnings, with 69% beating profit estimates for the quarter, according to Refinitiv data.
Lyft Plummets as Prices are Lowered, Raising Concerns about Competition with Uber
Lyft Inc. saw its shares decline 36.44% after the company lowered its prices, raising concerns that it was falling behind its bigger rival Uber Technologies Inc. Uber’s shares also dropped 4.43%. In February, U.S. consumer sentiment improved further compared to the previous month; however, households expect higher inflation to persist over the next 12 months according to preliminary data from the University of Michigan.
In conclusion, the stock market continues to be affected by a combination of factors, including rising interest rates, earnings reports, and competition in the ride-hailing industry. Investors are closely monitoring the latest data and commentary from the Federal Reserve as they look for clarity on the rate-hike path. The energy sector experienced a boost this week as oil prices climbed; however, consumer discretionary stocks fell due to weakness in retailers such as Amazon and Target. As always, investors should be prepared for ongoing volatility in their portfolio holdings.