U.S. stocks fell, capping a third weekly decline, as disappointing corporate results and prospects for aggressive interest-rate hikes weighed on sentiment. 

The S&P 500 slid 2.8 per cent, the biggest decline since March 7, tipping the benchmark to a weekly decline in the longest run of losses for the period since January. Declines in tech-heavy Nasdaq 100 left it down more than 9 per cent so far in April, poised for the worst month since 2008. Meanwhile, the market’s so-called fear gauge -- the Cboe Volatility Index or VIX -- jumped to a one-month high. The dollar rose to the highest level since June 2020. 

Among corporate earnings, Verizon Communications Inc. had its biggest drop in two years after cutting its full-year sales forecast. American Express Co. fell after the credit-card giant reported that expenses jumped in the first quarter. 

Traders have increased bets on the Federal Reserve tightening policy after Chair Jerome Powell this week outlined his most aggressive approach yet to taming inflation, potentially endorsing two or more half percentage-point rate increases. Stocks briefly bounced off session lows late Friday after Cleveland Fed President Loretta Mester pushed back against raising interest rates by 75 basis points at a single meeting, favoring a “methodical approach.”

“A more aggressive monetary policy is getting priced across the board on the short end of the curve while also contaminating the rest of it,” said Florian Ielpo, head of macro at Lombard Odier Asset Management. “The equity market had difficulties factoring in this surge in yields, over an earnings-season period that appears to be shaky.”

Money markets priced in 200 basis points of tightening by the Fed’s September decision, according to interest-rate swaps. That implies a half-point hike -- unheard of since 2000 -- in May, June, July and September. 

Powell on Thursday cited minutes from last month’s policy meeting that said many officials had noted “one or more” 50 basis-point hikes could be appropriate to curb the hottest inflation in four decades.  

Health-care stocks tumbled, with HCA Healthcare Inc. sinking after cutting its forecast on labor costs. Intuitive Surgical Inc. tumbled after its systems placements disappointed some analysts even as revenue beat estimates.

On the flip side, Kimberly-Clark Corp. surged after first-quarter sales and profit beat Wall Street’s estimates, as the company passed on higher costs to consumers. So far in the earnings season, with 98 S&P 500 companies that have reported quarterly results, more than 79 per cent have beaten estimates for profit and 65 per cent have surpassed sales forecasts.

European equities joined Friday’s selloff as financial results in the continent proved to be a mixed bag and stronger tightening signals from the European Central Bank undermined risk appetite. Investors also braced for the second round of voting in the French presidential election this Sunday, where Emmanuel Macron will face off against Marine Le Pen. The euro fell for a second day against the dollar.

More market commentary

• “The Fed still needs to push on its hawkish rhetoric,” Kelsey Berro, fixed income portfolio manager at JPMorgan Investment Management Inc, said on Bloomberg TV. “They would ideally like to be above 2 per cent by the end of the year and I think that the economy will work with them on that. We do still see the U.S. economy as fairly resilient. There’s a lot of pent up demand for spending particularly on the services side.”
• “On monetary policy, the Fed has to follow it through -- that it’s very serious and that it’s not simply underwriting a put for the stock market every time financial markets have a hiccup,” Glenn Hubbard, a finance and economics professor at Columbia University, said on Bloomberg TV.
• “The unknown is Powell’s ability to deliver the needed finesse without completely derailing the recovery, while not falling short of the required magnitude to anchor inflation,” Ian Lyngen, head of interest rate strategy at BMO Capital Markets, wrote in a note.

Some of the main moves in markets:

Stocks

• The S&P 500 fell 2.8 per cent as of 4 p.m. New York time
• The Nasdaq 100 fell 2.6 per cent
• The Dow Jones Industrial Average fell 2.8 per cent
• The MSCI World index fell 2.5 per cent

Currencies

• The Bloomberg Dollar Spot Index rose 0.7 per cent
• The euro fell 0.3 per cent to US$1.0797
• The British pound fell 1.5 per cent to US$1.2833
• The Japanese yen fell 0.1 per cent to 128.53 per dollar

Bonds

• The yield on 10-year Treasuries declined one basis point to 2.89 per cent
• Germany’s 10-year yield advanced two basis points to 0.97 per cent
• Britain’s 10-year yield declined five basis points to 1.96 per cent

Commodities

• West Texas Intermediate crude fell 2 per cent to US$101.73 a barrel
• Gold futures fell 0.7 per cent to US$1,934.70 an ounce