U.S. stocks turned higher Friday afternoon, with major indexes extending the whipsaw moves that have injected fresh volatility into markets this week.
The S&P 500 was recently trading up about 0.6%, and the Dow Jones Industrial Average rose 0.3%, about 90 points, while the Nasdaq Composite was 1.6% higher.
After hitting multiple records last year, U.S. stocks are facing a reckoning. Investors are assessing inflation, the central banks’ response to it, and the outlook for the global economy.
The S&P 500 entered a bear market on Monday and continued falling Tuesday. Stocks rallied Wednesday after the Federal Reserve announced its biggest interest-rate increase since 1994. They reversed course Thursday, closing at their lowest levels since 2020, as investors digested the reality of continued inflation.
Just as important as the rate increase was the Fed’s signals that it would continue lifting rates at the most rapid pace in decades to fight inflation. Higher interest rates are meant to slow down inflation by cooling the overall economy, but some investors worry that the Fed could tip the U.S. into a harsh slowdown.
“The big question is, ‘Will the Fed tighten so much as to cause a recession?’ That’s what the stock market is trying to discount,” said Jay Willoughby, chief investment officer at TIFF Investment Management.
Even with the Friday increases, stock indexes are on track to finish the week with sharp losses.
The recent rate increases have reversed a prior cycle of loosening monetary policy that allowed prices for both stocks and bonds to rally in recent years. Prospects for repeated rate rises throughout the rest of the year have caused investors to sell both assets and lent to fears that rapid tightening could reduce growth. U.S. mortgage rates recently reached their highest level in more than 13 years. Recent economic data have shown sharp declines in key sectors.
The once-hot crypto market also had a crazy week, reinforcing investors’ concerns that there is nowhere to hide from the current market turmoil. One of the largest crypto lending platforms, Celsius Network LLC, told customers on Sunday it was pausing all withdrawals. The anxiety spread quickly throughout the sector. Companies like Coinbase announced big layoffs and prices for bitcoin and other cryptocurrencies tumbled.
Mr. Willoughby said that if yields on the 2-year Treasury note fall below 2.5%, it could indicate that the market believes the Fed has tamed inflation. On Friday, the 2-year Treasury yield traded around 3.155%, down slightly from 3.158% Thursday. Mr. Willoughby said the S&P 500 needs to fall more before his firm looks to add tech, consumer discretionary and telecom stocks.
Hani Redha, a portfolio manager at PineBridge Investments, said it is possible that inflation could still climb further in the coming months as energy prices remain elevated.
“The central banks, who have been our friends for a very long time, are telling us we should expect pain,” Mr. Redha said. “That inflation number is the only thing that matters right now. Even if we see growth slowing a lot, that will not be enough to cause the Fed to change course.”
Brent crude, the international benchmark for oil prices, edged down 6.4% to $112.11 a barrel.
The S&P 500 energy sector is on pace to enter bear market territory on Friday, down 20% from its recent high on June 8.
all fell at least 8.3%. European natural-gas prices rose 5.4% Friday, putting them up 51% for the week. Moscow’s move to slash natural-gas exports to Europe this week has pitched the continent’s energy crisis into a dangerous new…