Following a period of pressure during Thursday's trading, stocks experienced a notable decline on Friday, with major indices retreating sharply and distancing themselves from Monday's record-closing highs. Despite recovering slightly from their lowest points in late trading, the indices closed firmly in the red. The technology-focused Nasdaq was most affected, dropping 427.53 points or 2.2% to close at 18,680.12. The S&P 500 fell by 78.55 points or 1.3% to 5,870.62, while the Dow Jones Industrial Average decreased by 305.87 points or 0.7% to 43,444.99.
The considerable dip on Friday contributed to a significant overall decline for the week, with the Nasdaq dropping 3.2%, the S&P 500 sliding 2.1%, and the Dow declining 1.2%. This downturn was largely driven by apprehensions regarding future interest rates, following remarks from Federal Reserve Chair Jerome Powell. On Thursday, Powell suggested that there is no urgent need for the Fed to reduce interest rates, pointing to the strength of the U.S. economy and indicating a cautious approach to any future monetary policy shifts.
Although the Federal Reserve is still anticipated to lower interest rates next month, probabilities of a quarter-point rate cut dropped to 58.4% from 72.2% as per CME Group's FedWatch Tool after Powell's comments. Additional concerns arose from a report by the Commerce Department, which revealed a higher-than-expected increase in retail sales for October, suggesting economic robustness that might prompt the Fed to delay further rate cuts. Retail sales saw a rise of 0.4% in October, following a revised 0.8% increase in September, surpassing economists' projections of a 0.3% climb.
An unexpected rise in import and export prices in October also stirred worries about persistent inflation levels. Quincy Krosby, Chief Global Strategist for LPL Financial, noted that strong retail figures indicated a resilient consumer base but also posed risk factors for inflation, potentially influencing the Fed to consider pausing at its forthcoming meeting rather than pursuing another rate cut.
Meanwhile, a separate Fed report indicated a decline in industrial production for October, attributed to the impact of recent hurricanes and a now-resolved strike at Boeing.
Sector-wise, biotechnology stocks fell sharply after the announcement that President-elect Donald Trump selected Robert F. Kennedy Jr., known for his skepticism towards vaccines, as Secretary of Health and Human Services. The NYSE Arca Biotechnology Index dropped 3.4%, reaching its lowest close in three months. Semiconductor stocks also witnessed significant declines, reflected in a 2.4% drop in the Philadelphia Semiconductor Index, marking its lowest close in over two months. The sector’s decline was led by Applied Materials, which, despite surpassing fiscal fourth-quarter expectations, offered disappointing revenue guidance for the current quarter.
Other sectors such as pharmaceuticals, networking, software, and retail also experienced notable weaknesses, whereas utility stocks managed to resist the downward trend.
Internationally, Asia-Pacific markets presented a mixed picture on Friday. Japan's Nikkei 225 Index increased by 0.3%, whereas China's Shanghai Composite Index dropped by 1.5%. In Europe, major markets ended the day lower. The French CAC 40 Index fell by 0.6%, the German DAX Index by 0.3%, and the UK's FTSE 100 Index by 0.1%.
In the bond market, treasuries recovered from early losses to close relatively stable, with the yield on the benchmark ten-year note, which moves inversely to the price, inching up by 1.0 basis point to 4.428% after touching a five-month intraday high of 4.505%.
Looking ahead to next week, the economic calendar in the U.S. is expected to be relatively quiet, although reports on housing starts, existing home sales, and weekly jobless claims might still garner attention.