Stocks initially rose in early trading on Friday but experienced a significant decline as the session progressed. Major indices retreated from their early highs and moved into negative territory.
After hitting record intraday highs, the Nasdaq dipped 126.08 points or 0.7% to 17,732.60, while the S&P 500 dropped 22.39 points or 0.4% to 5,460.48. The Dow had a more modest loss, slipping 45.20 points or 0.1% to 39,118.86.
For the week, the Nasdaq saw a 0.2% increase, whereas both the Dow and the S&P 500 edged down by 0.1%. Nonetheless, the Nasdaq and S&P 500 recorded substantial gains for the first half of the year.
The initial strength on Wall Street followed a Commerce Department report revealing that consumer price inflation for May met economist expectations.
The report indicated that the personal consumption expenditures (PCE) price index remained unchanged in May after a 0.3% rise in April, with the annual growth rate slowing to 2.6% from 2.7%. The core PCE price index, which excludes food and energy, inched up by 0.1% in May, following an upwardly revised 0.3% increase in April. The annual growth rate of core prices also slowed to 2.6% in May from 2.8% in April, aligning with economist estimates.
While the data initially fostered optimism about interest rate outlooks, buying interest dwindled as the session continued. The market pullback may have been influenced by a negative response to a reversal in treasury yields, which, after initially dropping post-data release, rebounded firmly into positive territory.
Treasury yields rose as analysts noted that the consumer price growth rate remains above the Federal Reserve's 2.0% target, suggesting the data is unlikely to prompt the central bank to hasten rate cuts.
"While an improvement from trends earlier this year, the elevated inflation readings in yesterday's revised GDP data indicate persistent pricing pressures," said John Lynch, Chief Investment Officer for Comerica Wealth Management.
"The expected number of rate cuts for this year has steadily declined, but traders continue to ignore the Fed's 'higher for longer' stance," he added. "Since the fed funds rate remains higher than nominal GDP growth, we believe the Fed will need to cut 1-2 times over the next six months. Any hope for further accommodation, absent recession, is likely misguided."
### Sector News
Despite the broader market pullback, networking stocks demonstrated considerable strength, with the NYSE Arca Networking Index surging by 2.4% to a four-month closing high. Infinera (INFN) led the sector, spiking 15.8% after the telecom equipment maker agreed to be acquired by Nokia (NOK) for $2.3 billion.
Banking stocks also showed notable strength, as reflected by the 2.3% jump in the KBW Bank Index. Additionally, steel, transportation, and semiconductor stocks saw significant gains, while utilities and computer hardware stocks declined.
### Other Markets
Internationally, stock markets in the Asia-Pacific region mostly rose on Friday. Japan's Nikkei 225 Index climbed by 0.6%, while China's Shanghai Composite Index advanced by 0.7%.
In Europe, the major markets displayed mixed performance. The French CAC 40 Index was down by 0.5%, while the UK's FTSE 100 Index and Germany's DAX Index posted gains of 0.2% and 0.5% respectively.
In the bond market, treasuries faced pressure throughout the session after initial strength. The yield on the benchmark ten-year note, which moves inversely to its price, climbed 5.5 basis points to 4.343%, after hitting a low of 4.261%.
### Looking Ahead
Next week, the spotlight will be on the monthly jobs report, although remarks by Fed Chair Jerome Powell, along with reports on manufacturing and service sector activity, may also draw attention. However, overall trading activity might be subdued due to the Independence Day holiday on Thursday.
