US Stock Market Closes Lower on Rising Interest Rates and Weak Economic Data: Dow, S&P 500, and Nasdaq Indices Drop

The Dow Jones New York Stock Exchange closed lower on Friday as investors expressed concerns about rising interest rates in the United States. This came after Federal Reserve Chairman Jerome Powell stated to Congress that the Fed will continue to raise interest rates in order to combat inflation, but will proceed with caution.

The Dow Jones Industrial Average closed at 33,727.43 points, experiencing a decrease of 219.28 points or -0.65%. Similarly, the S&P 500 index closed at 4,348.33 points, a decrease of 33.56 points or -0.77%, and the Nasdaq index closed at 13,492.52 points, a decrease of 138.09 points or -1.01%.

All three stock indices closed the week with losses. The Dow was down 1.7%, the S&P 500 was down 1.4%, and the Nasdaq was down 1.4%.

The S&P 500 had been experiencing five consecutive weeks of gains before closing lower this week, marking the longest consecutive gain since November 2021. Similarly, the Nasdaq index closed this week after eight consecutive weeks of gains, the longest streak since March 2019.

Additionally, both the S&P 500 and Nasdaq posted their biggest percentage drop since early March.

All 11 stocks on the S&P 500 index experienced losses, with utilities suffering the biggest percentage loss. Large interest rate-sensitive stocks weighed down the Nasdaq, particularly Microsoft Corp, Tesla Inc, and Invidia Corp.

The US stock market faced pressure after San Francisco Fed President Mary Daly stated in an interview with Reuters that two more rate hikes by the Fed this year are reasonable predictions. She also echoed Powell’s call for caution in monetary policy. Atlanta Fed President Tom Barkin expressed his belief that inflation is not moving towards its 2 percent target but did not provide any expectations for the outcome of the Fed meeting in July.

According to the CME’s FedWatch tool, financial markets anticipate a 74.4% chance of the Fed beginning to raise rates by 0.25% at its July meeting.

Tech stocks were weighed down by chip stocks, with the Philadelphia semiconductor stock index falling 1.8 percent. Starbucks Corp shares also fell by 2.5% after the company’s labor union announced that approximately 3,500 US workers would protest next week due to the company’s prohibition on store decorations for Pride Month.

However, CarMax Inc., a used-car marketplace, experienced a 10.1% jump in its stocks after posting better-than-expected quarterly profit.

Weak economic data releases also contributed to the pressure on the US stock market. S&P Global’s Purchasing Managers’ Index (PMI) for the preliminary US manufacturing and services sectors dropped to 53.0 in June, the lowest level since March, from 54.3 in May.

Despite the decline, the PMI index remains above 50, indicating that the US business sector is still expanding for the fifth consecutive month. The PMI was supported by a rebound in new orders and employment, although business sentiment tumbled to a six-month low.

The preliminary Manufacturing PMI dropped to 46.3, the lowest level in six months, from 48.4 in May. Similarly, the preliminary service sector PMI dropped to 54.1, a two-month low, from 54.9 in May.

How have rising interest rates affected the performance of real estate and technology sectors in the stock market?

Ks like real estate and technology also saw significant declines.

Investors are concerned that rising interest rates will impact borrowing costs for businesses and consumers, potentially slowing down economic growth. Higher interest rates can also make bonds and other fixed-income investments more attractive compared to stocks, leading to a shift in investor preferences.

Powell’s comments indicating that the Federal Reserve will continue to raise interest rates raised these concerns further. While the Fed’s intention is to control inflation, investors are worried about the impact on the stock market and the overall economy.

The negative performance of the stock market this week reflects these concerns and the potential for future volatility. Investors will be closely watching upcoming economic data and any further statements from Federal Reserve officials for clues about the pace and magnitude of future interest rate hikes.

Despite the recent declines, many experts believe that the overall economic outlook remains positive. Economic growth is expected to continue, albeit at a potentially slower pace, and corporate earnings are projected to remain strong. However, uncertainty surrounding interest rates will likely continue to influence market sentiment in the coming weeks and months.