By Stephen Culp
NEW YORK (Reuters) – U.S. stocks ended sharply lower and Treasury yields headed higher on Friday as plunging chip stocks and mixed economic data dampened investors’ risk appetite, providing a downbeat ending to a tumultuous week.
All three major U.S. stock indexes closed deep in red territory, with chipmakers weighing on the tech-laden Nasdaq.
The S&P 500 and the Nasdaq reversed their weekly advances, while the blue-chip Dow ended the week nominally higher.
The Philadelphia SE Semiconductor index slid 3.0% in the wake of a Reuters report that Taiwan’s TSMC asked major suppliers to delay delivery of high-end chipmaking equipment.
On the economic front, data released on Friday was mixed, with import prices jumping, industrial production beating expectations and University of Michigan consumer inflation expectations cooling.
Economic indicators this week have cemented expectations that the Federal Reserve will leave its key interest rate unchanged at the conclusion of next week’s monetary policy meeting, and fueled hopes that the central bank’s tightening cycle might have run its course.
“There’s a tug of war going on between those who think inflation and interest rates are going to come down and the Fed is going to start cutting rates next year, and those who believe that inflation is going to stay well above the Fed target for a while and therefore rates will stay higher for longer,” said Chuck Carlson, chief executive officer at Horizon Investment Services in Hammond, Indiana.
Financial markets have priced in a 97% likelihood that the central bank will hold the Fed funds target rate at 5.25%-5.00% when it announces its decision next Wednesday, and a 68.5% likelihood of it doing the same at the conclusion of its November meeting, according to CME’s FedWatch tool.
“If we get a pause in September and November, that could lead to a nice year-end rally, which will feed the belief that the next move by the Fed will be a rate cut in 2024,” said Robert Pavlik, senior portfolio manager at Dakota Wealth in Fairfield, Connecticut.
The Dow Jones Industrial Average fell 288.87 points, or 0.83%, to 34,618.24, the S&P 500 lost 54.79 points, or 1.22%, to 4,450.31 and the Nasdaq Composite dropped 217.72 points, or 1.56%, to 13,708.34.
European stocks closed higher, extending a rally sparked by the European Bank signaling an end to its rate-hiking cycle, and logging a weekly gain.
The pan-European STOXX 600 index rose 0.23% and MSCI’s gauge of stocks across the globe shed 0.63%.
Emerging market stocks rose 0.33%. MSCI’s broadest index of Asia-Pacific shares outside Japan closed 0.58% higher, while Japan’s Nikkei rose 1.10%.
Treasury yields rose ahead of the Federal Reserve policy meeting next week, with two-year yields edging above the 5% threshold amid worries that restrictive interest rates will be in place for longer than expected.
Benchmark 10-year notes last fell 10/32 in price to yield 4.3304%, from 4.29% late on Thursday.
The 30-year bond last fell 17/32 in price to yield 4.4182%, from 4.385% late on Thursday.
The dollar inched lower against a basket of world currencies, but nabbed its ninth straight weekly gain.
The dollar index fell 0.08%, with the euro up 0.16% to $1.0658.
The Japanese yen weakened 0.28% versus the greenback at 147.89 per dollar, while Sterling was last trading at $1.2382, down 0.22% on the day.
Oil prices continued to climb, notching their third consecutive weekly gain on supply tightness and optimism that the Chinese economy is gaining strength.
U.S. crude rose 0.68% to settle at $90.77 per barrel, while Brent settled at $93.93, up 0.25% on the day.
Gold prices surged, bouncing off three-week lows in opposition to softness in the greenback.
Spot gold added 0.7% to $1,922.69 an ounce.
(Reporting by Stephen Culp; Additional reporting by Naomi Rovnick in London and Kevin Buckland in Tokyo; Editing by Nick Zieminski, Diane Craft and Deepa Babington)