US stocks are expected to extend the previous session’s sharp falls at the open on Friday as worries over stubbornly high inflation mount up, while comments from Federal Reserve officials point to interest rates remaining higher for longer.
Futures for the blue-chip Dow Jones Industrial Average (DJIA) were 0.6% lower in pre-market trading, while those for the broader S&P 500 and tech-laden Nasdaq-100 fell 0.8% and 1.1%, respectively.
On Thursday, the DJIA shed 431 points, or 1.3%, while the S&P 500 lost 1.4%, and the Nasdaq Composite dropped 1.8%.
The losses came after January’s producer price index (PPI) rose by 0.7%, well above forecasts for a 0.4% increase in wholesale inflation, which came hot on the heels of a stronger-than-expected consumer price index (CPI) reading for January earlier in the week. The Labor Department also reported an unexpected fall in initial jobless claims for the week ending February 11 on Thursday.
The sell-off intensified late in the day following comments from St. Louis Federal Reserve president James Bullard who had backed a 50 basis point interest rate hike at the central bank’s previous policy meeting and said that he would not rule out a rate increase of that magnitude at the March meeting.
Neil Wilson, chief market analyst at markets.com, commented: “I’ve been saying it here for long enough – the Fed will go higher and for longer than the market keeps hoping. Now the latest PPI print and some more hawkish noises from James Bullard has scattered the bulls … This is telling us that inflation is proving to be stickier and broader than feared.”
He added: “Fundamentally, the market and perhaps the Fed were declaring victory on inflation too soon. It’s the old pivot narrative from last year but remember the Fed was never going to pivot and now can’t because it’s become data dependent; and the data won’t allow it.”
Investors will watch Fed officials for more hints on the central bank’s rate-hiking campaign on Friday, with Richmond Fed president Tom Barkin speaking about the labor market on Friday morning and Fed Governor Michelle Bowman taking part in a discussion at the Tennessee Bankers Association’s credit conference.
On a weekly basis, the major indexes are mixed ahead of Friday’s session. The DJIA is down 0.5% for the week and on pace for its third negative week in a row, the first since September. The Nasdaq Composite is up 1.18% for the week, on track for its sixth week of gains in seven, but the S&P 500 is flat.