Dow, S&P 500 turn lower, with U.S. stocks falling after oil prices erase loss

By Christine Idzelis and William Watts

The Dow Jones Industrial Average and S&P 500 index turned lower in late afternoon trade Friday, after oil prices rebounded following reports of a missile strike on a Saudi Aramco facility and as investors continued to weigh rising interest rates.

The Nasdaq Composite remained down Friday afternoon, but was still on track for its second straight weekly gains, as investors largely shook off worries around the Russia-Ukraine war and increasingly hawkish commentary from Federal Reserve officials.

How are stocks trading?

On Thursday, the Dow Jones Industrial Averagerose nearly 350 points, or 1%, while the S&P 500 gained 1.4% and the Nasdaq Composite climbed 1.9%.

For the week, the Dow is heading for a slight gain of less than 0.1% , while the S&P 500 is on track to rise 1.5% and the Nasdaq is poised to gain 1.7%.

What’s driving markets?

U.S. stocks edged lower in late afternoon trading Friday, after oil futures turned higher following news reports that a missile strike had caused an explosion and fire at a Saudi Aramco facility in Jeddah. Yemen’s Iran-backed Houthi rebels have claimed credit for past strikes on Saudi facilities.

Meanwhile, the Federal Reserve’s monetary policy and the Russia-Ukraine war remained in focus for investors.

“Investors are readjusting their sights for how high interest rates must go and how fast those rates must rise in order to reduce the inflation pressure,” according to James Solloway, chief market strategist and senior portfolio manager at SEI Investments Co.

The Russia-Ukraine war has been “a major shock” that risks making the problem of inflation “even more intense” before the surge in cost of living starts to come back down, said Solloway, in a phone interview Friday. “Even if peace breaks out tomorrow,” he said that shortages of energy, food and metals will remain a concern as Russia will continue to be “isolated” from the West.

“Investors should expect more volatility and a very mixed equity performance,” said Solloway. “The specter of stagflation is beginning to rise.”

Information technology is the worst performing sector in the S&P 500 index on Friday afternoon, with losses of around 0.8%, according to FactSet data, at last check. The energy sector was showing the biggest gains, up around 2%.

Rising yields are “bringing back concern about valuations among those more expensive stocks in the market,” said Jeff Kleintop, chief global investment strategist at Charles Schwab, in a phone interview Friday. “Financials, energy and more cyclical parts of the market are doing well,” he said. The S&P 500’s financials sector was up around 1% Friday afternoon, FactSet data show.

Meanwhile, something “unusual” has happened in the stock market lately, according to Kleintop. He said that financial conditions have eased since initially tightening on the Russia-Ukraine war, “even though the Fed is talking up being more hawkish.” While that has helped to lift the stock market, the recent rally is probably “limited,” in his view, as financial conditions “ultimately” will tighten again should the Fed continue its “hawkish messaging.”

“Investor bias remains toward larger safer stocks with the biggest, Apple (AAPL), on a 15% run-up off the recent bottom and the Dow more stable than indexes with smaller companies,” said Louis Navellier, founder and chief investment officer at Navellier & Associates, in a note.

“The focus going forward will be with companies demonstrating pricing power in the next round of earnings as inflation and resulting higher interest rates will remain the biggest concern,” he said.

Investors and economists have penciled in more aggressive interest rate increases by the Federal Reserve after Chairman Jerome Powell earlier this week said the central bank could lift rates by more than 25 basis points, or a quarter of a percentage point, in future meetings, while some policy makers have argued for half-point increases.

New York Fed President John Williams on Friday said he would support a half-point move if justified but indicated it was premature to make a call on the size of a future rate increase. Citigroup C in a note Friday saw the Fed raising interest rates in four straight half percentage point moves and then hiking into 2023, sending the benchmark rate to a range of 3.5% to 3.75%.

In U.S. economic data Friday, the final reading of the University of Michigan’s consumer sentiment in March fell slightly to 59.4 and stayed at a nearly 11-year low because of high inflation and angst about the Russian invasion of Ukraine.

“Consumer sentiment has been hurt because of inflation more than anything else,” said SEI’s Solloway. “People don’t like it when they see prices at the gas pump jumping” or prices at the grocery store that are “materially higher” compared to just a few months ago, he said.

In other U.S. economic data, pending home sales slid 4.1% in February, according to the National Association of Realtors on Friday. That’s the lowest level in nearly two years.

Elsewhere, the European Council and European Parliament reached a provisional agreement on a Digital Markets Act, aimed at tech giants such as Google parent Alphabet Inc. (GOOGL), Apple, and Facebook parent Meta Platforms (FB).

What companies are in focus?

How are other asset faring?

–Barbara Kollmeyer contributed to this report.

-Christine Idzelis


(END) Dow Jones Newswires

03-25-22 1545ET

Copyright (c) 2022 Dow Jones & Company, Inc.

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