Four Out of Five Stocks on S&P Fall as Index on Track for Worst Day in a Month

Stocks were down on Wall Street on Friday, with four out of five stocks in the index falling, putting it on course for the market's worst day in a month.

The S&P 500 is on track for its first losing week in four, and banks are losing steam along with other stocks that soared earlier in the year with expectations for the economy and inflation.

The S&P 500 was 0.9 percent lower in afternoon trading, resulting in widespread losses. The Dow Jones Industrial Average was down 406 points, or 1.2 percent, at 33,416, as of 2:10 p.m. ET. The Nasdaq composite was down 0.6 percent.

For more reporting from the Associated Press, see below.

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The S&P 500 is on track for its first losing week in four weeks, and banks are losing steam along with other stocks that soared earlier in the year with expectations for the economy and inflation. Above, the New York Stock Exchange and Wall Street in New York on June 2, 2021. VIEWpress/Kena Betancur

Investors are still recalibrating their moves following the Federal Reserve's signal this week that it may raise interest rates sooner than earlier expected.

Policymakers indicated they may raise short-term rates twice by late 2023, and they also began talks about slowing the bond-buying program that's keeping longer-term rates low. On Friday, St. Louis Federal Reserve President James Bullard said on CNBC his personal prediction was that the first rate increase may come as soon as next year.

It's an acknowledgment that a rebounding economy with near-record prices for homes and stocks may not need super low rates much longer. A recent burst of inflation may also be upping the pressure. But any pullback in Fed support would be a big change for markets, which have been feasting on ultra-low rates for more than a year. It marked a "U-turn on Easy Street," as strategists at BofA Global Research described it.

That's hurt stocks of banks, oil producers and other companies whose profits are closely tied to the strength of the economy in particular. On the other side, stocks of companies able to grow almost regardless of the economy's fortunes have held up better.

The Dow Jones Industrial Average, which is full of companies whose profits move more with the economy, is on pace for a 3.1 percent drop this week. That would be its worst since late January. The Nasdaq composite, which has more high-growth tech stocks, is nearly unchanged for the week, meanwhile.

Of course, all the major U.S. stock indexes remain relatively close to their record highs, as the economy continues to leap out of the recession caused by the pandemic. The S&P 500 is less than 2 percent below its all-time high set on Monday, and the Dow is within 4 percent of its record set last month.

A measure of nervousness in the stock market, known as the VIX, rose Friday but is only back to where it was about a month ago.

Banks are taking a hit from the shrinking gap between shorter- and longer-term interest rates, which helped send financial stocks in the S&P 500 down 2.2 percent on Friday. That was the sharpest loss among the 11 sectors that make up the index.

When the gap is wide, the industry can make big profits from borrowing cash in short-term markets and lending it out at longer-term rates. But short-term yields jumped sharply this week after the Fed's indication that it may be moving up the timeline for rate increases. The two-year Treasury yield rose to 0.25 percent Friday from 0.23 percent a day before and from 0.16 percent a week before.

The 10-year Treasury yield, which is less directly affected by Fed moves, ended the week close to where it started, though there were some jagged moves up and down in the interim. It sat at 1.44 percent Friday afternoon, down from 1.51 percent late Thursday but not far off from its 1.46 percent level a week earlier.

The rate pressure helped send JPMorgan Chase down 2.6 percent, and it was one of the heaviest weights on the S&P 500. Bank of America dropped 2.8 percent.

The quickly recovering economy and some supply shortages have helped send prices soaring across the economy recently, from lumber to airline tickets to used cars. The Fed has said it expects high inflation to be only "transitory," and prices for lumber at least have already started to moderate a bit. Much of Wall Street also say inflation looks to be only temporary, but part of the Fed's mission is to keep prices under control.

"You just don't have the firms able to build capacity to meet demand," said Ken Johnson, investment strategy analyst at Wells Fargo Investment Institute. "Investors are nervous about that."

The first action the Fed is likely to take would be a slowdown in its $120 billion of monthly bond purchases, which are helping to keep mortgages cheap, but the Fed's chair said such a tapering is still likely "a ways away."

Besides keeping inflation steady, the Fed's other main job is to keep the job market healthy. Employment has been improving, but growth has slowed in recent months.

"That gives investors some reassurance that the Fed isn't going to move on rates when the economy, from a labor market perspective, isn't back to where it was," Johnson said.

Among the few winners in the market Friday was software maker Adobe. It rose 1.9 percent after reporting stronger results for the latest quarter than analysts expected and gave an encouraging forecast for the current quarter.

Gun maker Smith & Wesson jumped 16.9 percent after raising its quarterly dividend and reporting stronger results for the latest quarter than expected.

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The S&P 500 is on track for its first losing week in four weeks, and banks are losing steam along with other stocks that soared earlier in the year with expectations for the economy and inflation. Above, people walk on Broadway at Wall Street on June 16, 2021. Richard Drew/AP Photo