Wall Street ends down, snaps weekly winning streak on Fed worries

By Stephen Culp

NEW YORK (Reuters) – U.S. stocks closed lower on Friday, capping a week dominated by Federal Reserve Chairman Jerome Powell’s testimony in which he signaled more interest rate hikes ahead but vowed the central bank would proceed with caution.

All three major U.S. stock indexes lost ground in a broad sell-off, with interest-sensitive megacap stocks weighing heaviest on the tech-laden index.

With few market-moving catalysts this week aside from Powell’s congressional testimony, all three indexes notched weekly losses, ending a weeks-long rally.

The Nasdaq snapped its eight-week winning streak, its longest since March 2019, while the broke its five-week rally, its longest since November 2021.

The S&P 500 and the Nasdaq logged their biggest Friday-to-Friday percentage drops since early March, when the regional banking liquidity crisis hit.

“It has been an overbought market, and giving a little bit back,” said Ross Mayfield, investment strategy analyst at Baird in Louisville, Kentucky. “(The rally) has been momentum-driven, with fairly broad participation, and there’s nothing surprising about markets taking a pause, and the pause has been fairly orderly.”

San Francisco Fed Bank President Mary Daly said in an interview with Reuters that two more rate hikes this year is a “very reasonable” projection, while echoing Powell’s call for more caution in policy decisions.

Atlanta Fed President Tom Barkin said late Thursday he was unconvinced inflation is on a steady path down to the 2% target, but added he would not predict the outcome of the central bank’s July policy meeting.

Financial markets have baked in a 74.4% likelihood that the Fed will resume hiking the Fed funds target rate by another 25 basis points at the July meeting, according to CME’s FedWatch tool.

“You can probably count on a rate hike next month, but it’s that second hike that the markets are skeptical of,” Mayfield added. “I’ll be surprised if the inflation data and other economic data merit that second hike by the time we get to the September (Fed) meeting.”

According to preliminary data, the S&P 500 lost 33.48 points, or 0.76%, to end at 4,348.41 points, while the Nasdaq Composite lost 138.09 points, or 1.01%, to 13,492.52. The Dow Jones Industrial Average fell 217.07 points, or 0.64%, to 33,729.64.

Used car marketplace Carmax Inc posted better-than-expected quarterly profits, sending its shares surging.

Starbucks Corp (NASDAQ:) fell after its unions said around 3,500 U.S. workers will strike next week to protest the chain’s ban on Pride month decorations at its cafes.

The is expected to soon finalize the reconstitution of its stock components, which tends to cause a surge in trading volume.