Wall Street ends down, shows weekly winning streak on Fed worries

NEW YORK, June 23 (Reuters) – U.S. stocks closed lower on Friday, capping a week dominated by Federal Reserve Chairman Jerome Powell’s testimony in which he signaled more rate hikes ahead but promised the central bank would proceed with caution.

All three major US stock indexes lost ground in a broad sell-off. Interest-sensitive megacap stocks weighed heavily on the technology-laden Nasdaq Composite ( .IXIC ), led by Microsoft Corp ( MSFT.O ), Tesla Inc ( TSLA.O ) and Nvidia Corp ( NVDA.O ).

With few market-moving catalysts this week aside from Powell’s congressional testimony, all three indexes posted weekly losses, ending a weeks-long rally.

The Nasdaq snapped its eight-week winning streak, its longest since March 2019, while the S&P 500 (.SPX) snapped its five-week rally, its longest since November 2021.

The S&P 500 and Nasdaq posted their biggest Friday-to-Friday percentage drops since early March, when the regional bank liquidity crisis hit.

“It’s been an overbought market, giving back a little bit,” said Ross Mayfield, investment strategy analyst at Baird in Louisville, Kentucky. “(The rally) has been momentum-driven, with fairly broad participation, and there’s nothing surprising about the markets taking a break, and the break has been pretty neat.”

San Francisco Fed Bank President Mary Daly said in an interview with Reuters on Friday that two more rate hikes this year is a “very reasonable” projection, while echoing Powell’s call for more caution in policy decisions.

Atlanta Fed President Tom Barkin said late Thursday that he was not convinced that inflation is on a steady path down to the 2% target, but added that he would not predict the outcome of the central bank’s July policy meeting.

Financial markets have baked in a 74.4% probability that the Fed will continue to raise the target Fed funds rate by another 25 basis points at the July meeting, according to CME’s FedWatch tool.

“You can probably count on a rate hike next month, but it’s the second hike that markets are skeptical about,” Mayfield added. “I would be surprised if the inflation data and other economic data warrants the second hike by the time we get to the September (Fed) meeting.”

The Dow Jones Industrial Average (.DJI) fell 219.28 points, or 0.65%, to 33,727.43, the S&P 500 (.SPX) lost 33.56 points, or 0.77%, to 4,348.33 and The Nasdaq Composite fell (9.0 IC). 1.01% to 13,492.52.

All 11 major S&P 500 sectors lost ground, with utilities (.SPLRCU) suffering the biggest percentage loss.

Chips weighed on technology stocks, with the Philadelphia SE Semiconductor index (.SOX) falling 1.8%.

Used car market Carmax Inc (KMX.N) delivered a better-than-expected quarterly profit, sending shares up 10.1%.

Starbucks Corp ( SBUX.O ) fell 2.5% after unions said about 3,500 U.S. workers will strike next week to protest the chain’s ban on Pride month decorations at its cafes.

The CBOE Market Volatility Index (.VIX), a gauge of investor anxiety, settled up 0.53 points at 13.44, returning to a 3-1/2-year low.

Declining issues outnumbered advancing ones on the NYSE by a ratio of 2.39 to 1; on the Nasdaq, a 2.03 to 1 ratio favored decliners.

The S&P 500 posted 18 new 52-week highs and four new lows; The Nasdaq Composite registered 35 new highs and 138 new lows.

The Russell 2000 completed the reconstitution of its equity components, leading to an increase in trading volume.

Volume on US exchanges was 15.93 billion shares, compared to the 11.68 billion average for the full session over the past 20 trading days.

Reporting by Stephen Culp; Additional reporting by Shubham Batra and Shristi Achar A in Bengaluru; Editing by Richard Chang

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