Wall Street falls as investors worry about interest rates

Feb 17 (Reuters) – Wall Street fell on Friday, weighed down by Microsoft and Nvidia as investors worried that inflation and a strong U.S. economy could prompt more rate hikes by the Federal Reserve.

Major indexes were on course to lose ground for the week as economic data pointed to higher inflation, a tight labor market and resilience in consumer spending, giving the Fed more room to raise borrowing costs.

Goldman Sachs and Bank of America are predicting three more interest rate hikes this year and by a quarter of a percentage point each, up from their previous forecast of two rate hikes.

Traders expect at least two more rate hikes and see the Fed rate peaking at 5.3% by July as the central bank tries to cool the economy and reduce inflation.

“A dark cloud has been hanging over the stock market for the past two weeks based on a higher watermark for the Fed Funds rate,” said Jake Dollarhide, managing director of Longbow Asset Management in Tulsa, Oklahoma.

“Jobs are not weakening, and it’s hard to go into a recession with a strong labor market at the same time. That means the Fed can push the button and move interest rates higher,” Dollarhide said.

Of the 11 S&P 500 sector indexes, seven, led lower by energy (.SPNY), fell 3.75%, followed by a 1.73% loss in information technology (.SPLRCT).

Microsoft Corp Nvidia ( NVDA.O ) and Amazon.com Inc ( AMZN.O ) each lost more than 2% and weighed heavily on the S&P 500 as the yield on 10-year Treasuries hit a three-month high.

The CBOE Volatility Index (.VIX), also known as Wall Street’s fear gauge, traded above 20 points for the second session in a row.

In afternoon trade, the S&P 500 was down 0.79% at 4,058.27 points.

The Nasdaq fell 1.24% to 11,708.36 points, while the Dow Jones Industrial Average fell 0.08% to 33,668.55 points.

The S&P 500 is up about 6% so far in 2023, while the Nasdaq has recovered 12% after heavy losses last year.

Fed Governor Michelle Bowman said the central bank must keep raising interest rates until it makes much more progress in tackling inflation. Richmond Fed President Thomas Barkin said the central bank still needs to raise interest rates but could stick to quarter-point increases.

Moderna Inc ( MRNA.O ) fell 5% after its experimental messenger RNA-based flu vaccine produced mixed results in a study.

Deere & Co ( DE.N ) rose more than 8% after the world’s largest maker of farm equipment raised its annual profit and beat expectations for quarterly results.

Lithium miners Livent Corp ( LTHM.N ), Albemarle Corp ( ALB.N ) and Piedmont Lithium Inc ( PLL.O ) all fell more than 10% on concerns about weak Chinese prices for the EV battery metal.

The US stock markets will be closed on Monday for President’s Day.

Across the US stock market ( .AD.US ), decliners outnumbered advancers by a ratio of 1.7 to one.

The S&P 500 posted six new highs and one new low; The Nasdaq registered 55 new highs and 57 new lows.

Reporting by Johann M Cherian and Sruthi Shankar in Bengaluru; Editing by Marguerita Choy

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