Dow falls 200 points to cap wild market week as investors brace for earnings ahead

Stocks slumped Friday, capping off a volatile week of trading, a day after posting a historic turnaround rally as investors digested inflation expectations.

The Dow Jones Industrial Average fell 305 points, or 1.02%, but was still on track to end the week higher after Thursday’s gains. The S&P 500 shed 1.86%, on track to end the week down. The Nasdaq Composite slipped 2.38%, weighed down by losses in Tesla and Lucid Motors, which each declined more than 5%.

Stocks fell to session lows after a consumer survey from the University of Michigan showed inflation expectations were increasing, sentiment that the Federal Reserve is likely watching closely. The tech-heavy Nasdaq led declines as growth companies are most sensitive to interest rate hikes.

At the same time, bond yields spiked, with the 10-year U.S. Treasury year topping 4% for the second time in two days as investors react to higher inflation expectations.

Markets whipsawed throughout the week as investors weighed new inflation data that will inform the Fed as it continues to hike interest rates to cool off price increases. On Thursday, stocks staged a major turnaround. The Dow ended Thursday’s session up 827 points after being down more than 500 points at the intraday low. The S&P 500 rose 2.6% to break a six-day losing streak, and the Nasdaq Composite jumped 2.2%.

Thursday marked the fifth largest intraday reversal from a low in the history of the S&P 500, and it was the fourth largest for the Nasdaq, according to SentimenTrader.

The moves followed the release of the consumer price index, a key U.S. inflation reading that came in hotter than expected for the month of September. Initially, this weighed on markets as investors braced themselves for the Federal Reserve to continue with its aggressive rate-hiking plan. Later, however, they shrugged off those worries.

Still, persistent inflation remains a problem for the Fed and for investors’ worries around the central bank’s policy tightening.

“With core CPI still moving in the wrong direction and the labor market strong, the conditions are not in place for a Fed policy pivot, which would be one of the conditions for a sustained rally in the equity market,” wrote UBS global wealth management chief investment officer Mark Haefele in a Friday note. “Moreover, as inflation remains elevated for longer and the Fed hikes further, the risk increases that the cumulative effect of policy tightening pushes the US economy into recession, undermining the outlook for corporate earnings.”