By Stephen Culp
NEW YORK (Reuters) – U.S. stocks tumbled to two-month lows on Friday as a slowdown warning from FedEx hastened investors’ flight to safety at the conclusion of a tumultuous week.
All three major U.S. stock indexes slid to levels not touched since mid-July, with S&P 500 sinking below 3,900, a closely watched support level the benchmark index has tested in recent weeks.
Marking the end of a week rattled by a witches brew of inflation concerns, looming interest rate hikes and ominous economic warning signs, the S&P 500 is on course for its worst weekly percentage plunge since June.
The Nasdaq is set for its biggest Friday-to-Friday drop since January while October 2020 was the last time the blue-chip Dow suffered a steeper weekly drop.
Risk-off sentiment went from simmer to boil in the wake of FedEx Corp’s withdrawal of its earnings forecast late Thursday, citing signs of dampening global demand.
FedEx’s move followed remarks from the World Bank and the IMF, both of which warned of an impending worldwide economic slowdown.
“In the background the thing that’s on the minds of investors is whether we’re going to have a recession or not,” said Tom Martin, Senior Portfolio Manager at GLOBALT in Atlanta. “If we have a recession, we can expect further downside in the equity market.”
A deluge of mixed economic data, dominated by a hotter-than-expected inflation report (CPI), cemented an interest rate hike of at least 75 basis points at the conclusion of the Fed’s monetary policy meeting next week.
“CPI wasn’t that far from expectations, but it means the Fed is going to stick to its rate hike path,” Martin added. “It will be interesting next week to compare the dot plot curve with what the futures markets are discounting.”
Financial markets have priced in a 14% likelihood of a super-sized, 100 basis point increase to the Fed funds target rate on Wednesday, according to CME’s FedWatch tool. <FEDWATCH.
At 2:17PM ET, the Dow Jones Industrial Average fell 309.52 points, or 1%, to 30,652.3, the S&P 500 lost 52.93 points, or 1.36%, to 3,848.42 and the Nasdaq Composite dropped 193.45 points, or 1.67%, to 11,358.90.
All 11 major sectors of the S&P 500 were lower, with energy and industrials suffering the sharpest percentage drops.
Dow Transports, viewed as a barometer of economic health, plummeted 6.0%.
That drop was led by FedEx shares tanking by 22.2%, the biggest drop in the S&P 500 and putting the company on track for its largest-ever one day slide.
Peers United Parcel Service and XPO Logistics slid 4.8% and 5.3%, respectively, while Amazon.com Inc slipped 2.8%.
The session also marked the monthly options expiry, which occurs on the third Friday of every month. Options-hedging activity has amplified market moves this year, contributing to heightened volatility.
The CBOE Market Volatility index, often called “the fear index,” touched a two-month high, breezing past a level associated with heightened investor anxiety.
Declining issues outnumbered advancing ones on the NYSE by a 5.47-to-1 ratio; on Nasdaq, a 4.34-to-1 ratio favored decliners.
The S&P 500 posted no new 52-week highs and 56 new lows; the Nasdaq Composite recorded 11 new highs and 336 new lows.
(Reporting by Stephen Culp; additional reporting by Devik Jain and Ankika Biswas in Bengaluru; editing by Grant McCool)