Stocks close lower Friday after hot inflation report; major averages log worst week in 2023

U.S. stocks fell sharply Friday, wrapping up their worst week of 2023, after the Federal Reserve’s preferred inflation gauge showed a stronger-than-expected increase in prices last month.

The Dow Jones Industrial Average
fell by 336.99 points, or 1.0%, to end at 32,816.92.

The S&P 500 dropped 1% to close at 3,970.04. The Nasdaq Composite slid 1.7% to end at 11,394.94.

The Dow fell as much as 510 points, or 1.54%, earlier in the trading session.

The major averages also ended the week with their biggest losses in 2023. The S&P 500 was down 2.7%, marking its worst week since Dec. 9.

The Dow fell almost 3.0% this week — its fourth straight losing week. The Nasdaq closed 3.3% lower, notching its second negative week in three.

Boeing shares slipped more than 4% after the company temporarily halted delivery of its 787 Dreamliners over a fuselage issue.

Shares of Microsoft and Home Depot fell 2.2% and 0.9%, respectively.

The core personal consumption expenditures price index, the Fed’s preferred measurement of inflation, rose 0.6% in January and 4.7% from the prior year, coming in above economists’ expectations.

The report added to worries that the Fed may have to keep rates higher for longer to quell inflationary pressures.

Liz Ann Sonders, chief investment strategist at Charles Schwab, believes there is more to the market’s downturn besides the PCE numbers.

“Another reason why the market is having trouble to some degree, I think, is not just about inflation being hotter or concerns that the Fed has to stay tighter for longer,” Sonders said on Friday.

“But there was just a lot of speculation that kicked back in —speculative froth. And the market tends to move in a contrarian fashion when sentiment gets a little too frothy. So I think some of the move has has to do with sentiment. Not just these macro forces,” she added.

The strategist believes that inflation cannot come down without a broader economic downturn.

“I think something would have to give either broadly in the economy, or more specifically in the labor market, to bring the immaculate disappearance of inflation,” Sonders said. “Without that commensurate hit to the economy or the labor market, I think it’s a stretch.”