Stocks Declines Deepen as Investors Cut Risk

Investors’ largely expect that the Federal Reserve will raise interest rates several times this year to combat inflation, which has weighed on stocks. Last week, Fed Chair

Jerome Powell

called rapid inflation a “severe threat” to a full economic recovery. Data showed consumer prices soared to about a four-decade high in December. Even with the hikes, interest rates will remain near historic lows, which investors hope will buoy markets. 

“The Fed is saying ‘OK, zero interest rates don’t make sense here, so we’re going to move back toward something more reasonable,’” said

Jonathan Golub,

chief U.S. equity strategist and head of quantitative research at Credit Suisse. “They’re not really hikes, but signals that a big rate of change is coming.”

Mr. Golub remains optimistic about equity markets, citing a year-end price target of 5200 points for the S&P 500, about 5.3% higher than Wall Street strategists’ average target.

All three major indexes were lower in late Friday trading. The S&P 500 was recently down 1.8%, while the Dow fell 1.3%. The Nasdaq Composite declined 2.5%, on pace for its worst week since March 2020. The S&P 500 is on track for its worst weekly performance since October 2020. 

Cryptocurrencies tumbled, with bitcoin losing about 6.6% compared with its level 24 hours earlier, trading around $38,644. Ether fell 8.9%. 

“All risk premium assets—crypto, high leverage, growth names—are being impacted, and what’s working right now is the opposite of that, quality stocks,” said

Jerry Braakman,

chief investment officer and president at First American Trust. He recommends that investors don’t buy the dip for tech stocks.

Aoifinn Devitt,

chief investment officer at Moneta, said higher yields will normalize the valuations of some tech stocks and make economically sensitive sectors of the market, such as utilities and real estate, more attractive. “By no means are we getting to a yield that is making equity markets look unattractive,” said Ms. Devitt.

Consumer staples rose as much as 0.4% Friday.