Stocks fell on Friday, closing out the worst week in more than two months, as Trump trades lost steam and investors bet the US Federal Reserve will have to slow the pace of policy easing.
The S&P 500 ended off session lows, with tech stocks leading declines. The benchmark has now erased over half of the trough-to-peak gains it notched after the US presidential election. Traders see slightly more than even odds of a quarter-point cut next month following comments by Jerome Powell this week indicating the Fed was in no hurry to lower rates and a report Friday on October retail sales that included large upside revisions to the prior month.
As the initial euphoria about President-elect Donald Trump’s pro-business agenda begins to fade, investors are coming to terms with the costs of his fiscal plans and their potential to reignite inflation.
“It will come at the expense of potentially larger budget deficits, potentially larger debt and there is also the inflation dimension,” said Charles-Henry Monchau, chief investment officer at Banque Syz & Co. “There’s been a realisation that there is a price to pay for this.”
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For the week, the S&P 500 was down 2.1% and the tech-heavy Nasdaq 100 dropped more than 3%, both posting the biggest declines for the period since Sept. 6. On Friday, shares of all “Magnificent Seven” megacaps retreated except Elon Musk’s Tesla, with Amazon.com, Nvidia and Meta Platforms sliding more than 3%.
Applied Materials, the largest US maker of chip-manufacturing equipment, suffered its worst stock decline in a month after giving a disappointing revenue forecast.
Late Friday, traders priced about a 56% chance the Fed will deliver a quarter-point reduction at its December meeting, down from 80% earlier this week. Bets on cuts were pared after Powell warned Thursday that the central bank may take its time easing policy.
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Boston Fed President Susan Collins said Friday a December cut remained on the table, emphasizing the central bank’s decision will be guided by incoming data. Chicago Fed chief Austan Goolsbee said as long as inflation continues down toward the central bank’s 2% goal, rates will be “a lot” lower over the next 12-18 months. He agreed with Powell, however, noting policymakers aren’t in a hurry to lower borrowing costs.
“The market is expensive and I think Powell’s speech last night basically saying that Fed officials don’t need to rush to lower rates, that’s probably the main reason why we’re selling off specifically today,” John Davi, CEO and CIO at Astoria Advisors, said by phone. “The higher rates go, the more equity risk premiums tilt more in the favor of bonds.”
Treasuries initially sold off after the retail sales data, pushing 10-year yields up to 4.5%, the highest since May 31. That lured buyers, sending yields back down around 4.44%. The greenback eased off two-year highs but headed for its seventh straight weekly gain.
Meanwhile, drugmakers Moderna and Pfizer came under pressure in New York trading after Trump named a prominent vaccine skeptic Robert F. Kennedy Jr. to a top health-policy role.
Chart: Bloomberg
