Stocks swung between gains and losses on Friday, with the S&P 500 heading for a fourth consecutive weekly decline, as investors weighed a report showing fast-rising prices in the U.S. and data showing that Germany’s economy contracted more than expected at the end of last year.
The S&P 500 rose slightly in midmorning trading, recovering from an early slump. The Nasdaq composite also edged higher.
The S&P 500 has zigzagged between gains and losses throughout the week — with moves of as much as 4 percent during a single day — as investors try to assess how much the Federal Reserve is likely to raise interest rates to combat inflation. Friday was no exception.
The turbulent trading came after a report from the Labor Department on Friday showed that the Personal Consumption Expenditures index, an inflation gauge that is closely watched by the Federal Reserve, rose 5.8 percent in the year through December, up from 5.7 percent the prior month. It was the fastest reading since 1982.
The Stoxx Europe 600 fell about 1.3 percent. Germany’s economy shrank 0.7 percent in the fourth quarter of last year, hampered by a rise in Omicron cases and supply chain bottlenecks.
Understand Inflation in the U.S.
Wall Street is virtually certain that the central bank will start its rate increases in March, but the question now is by how much, and how often will it do so.
On that front, some of the data released on Friday could have been read as a positive. The Employment Cost Index, a measure of wages and salaries in the U.S., rose 1 percent for the three months ending in December. That was a slowdown in the pace of increase from the previous three months and lower than the rate economists had expected.
But there are other concerns weighing on stock prices. Companies are forecasting further headwinds coming in 2022 as wages rise and supply chain bottlenecks persist, and the combination of these elements has raised fear on Wall Street of a drop in economic growth, corporate profits and the longer-term appetite for stocks.
The swoon has left the S&P 500 hovering just above a correction, which is Wall Street’s label for a drop of 10 percent from its recent high, and a marker of investors’ swiftly changing attitude about the prospects for the economy.
“A correction signifies that the economy has really lost momentum,” said Edward Moya, a market analyst at OANDA, a foreign currency exchange and brokerage firm. “We’re seeing fear in the market because there’s concerns that the economy is going to be struggling going forward.”
What is inflation? Inflation is a loss of purchasing power over time, meaning your dollar will not go as far tomorrow as it did today. It is typically expressed as the annual change in prices for everyday goods and services such as food, furniture, apparel, transportation and toys.
Early in January, investors were spooked by a big jump in government bond yields — a benchmark of borrowing costs across the economy — and then were disappointed by corporate earnings reports or forecasts for the year ahead from companies as varied as Goldman Sachs and Netflix.
On Thursday, for example, shares of the electric vehicle maker Tesla slid more than 11 percent, weighing on the broader S&P 500, after the company said that supply chain problems would put a constraint on production in the coming year. Tesla fell another 2.7 percent on Friday.
“The markets have had a lot of information has thrown at them,” said Fiona Cincotta, senior financial markets analyst at Forex.com. “That P.C.E. is pretty bad news because it tells us that inflation was still rising in December.”
There has been some good news this week. The government reported on Thursday that the economy grew quickly in the final three months of the year, gains driven by consumer spending, private investment and an increase in inventories, which suggested that supply chain problems may in fact be better than expected.
And on Friday, shares of Apple climbed 3 percent after it beat Wall Street analysts’ expectations, which could ease fears that the tech industry’s long period of fast growth may be coming to an end. It made a record $34.6 billion in profit off revenue of $123.9 billion in the three months ending in December, though its revenue growth continued to slow.