By Yasin Ebrahim
Investing.com -- The Dow fell Friday, rounding off its worst quarterly losing streak since 2015 that has pushed stocks into bear-market territory as investors prepared for further Federal Reserve rate hikes to cool inflation that continues to run hot.
The Dow Jones Industrial Average fell 1.7%, or 490 points, the Nasdaq was down 1.5%, and the S&P 500 fell 1.4%. All three major averages fell for the third straight quarter.
The personal consumption expenditure price index, the fed’s preferred inflation measure, showed that inflation rose more than expected in August. This “compounds the pressure for the [Fed] to stay on course in its fight against inflation,” Stifel said in a note.
Fed vice chair Lael Brainard on Friday cautioned against the central bank reversing course on monetary policy too early, saying monetary policy would need to be “restrictive for some time to have confidence that inflation is moving back to target”
After hiking rates by 3% in just six months, the fed continues to echo the need for further hikes, stoking worries among investors that the central bank could overshoot on tightening and push the economy into a deep recession.
The push higher in inflation, however, hasn’t yet had a material impact on the consumer, according to personal spending data Friday, to force a material change in consumer spending, suggesting a deep recession isn't on the horizon.
“We haven't seen that change [in consumer spending habits],” Brian Mulberry, client portfolio manager at Zacks Investment Management told Investing.com in an interview on Friday. “Our forward-looking earnings model shows that companies are forecasting strong sales estimates.”
Growth sectors like consumer discretionary and tech have been in the crosshairs, with the latter down 31% this year, as a rising rate environment has soured investor sentiment on stocks with higher valuations.
Despite the brutal quarter for growth stocks, Mulberry says, it’s “too early” to rotate back into growth from value stocks because “rates aren't done going up.”
The earnings front, meanwhile, did little to turn the tide of negative sentiment as Nike (NYSE:NKE) stumbled nearly 13% following quarterly results that beat Wall Street expectations, but the sportswear giant cut its outlook on gross margin as price cuts will be needed to clear inventory levels.
Nike “lowered its gross margin forecast by 200 bps … due to the need to aggressively discount mis-timed inventory as a result of supply chain challenges,” Goldman Sachs said after cutting its price target on the company to $98 from $120 prior.
Micron Technology (NASDAQ:MU), meanwhile, was flat as investors weighed the chipmaker’s softer guidance delivery after better-than-expected results.
Rent-A-Center (NASDAQ:RCII) slumped 21% after cutting third-quarter guidance as consumer demand came under pressure from weakening economic growth.