Wall Street slumps on fears over growth, Fed policy

NEW YORK/LONDON • Risk aversion dominated markets on Friday as stocks slumped on Wall Street and in Europe, oil prices fell from seven-year highs earlier in the week and bond prices surged with traders scurrying for the relative safety of government debt.

Poor subscriber growth reported late on Thursday at Netflix sent its shares plunging 21.8 per cent and cast a pall over a market already shaken by concerns the Federal Reserve will tighten monetary policy too aggressively to fight inflation.

Investors are waiting for details from the Fed's policy meeting this week on how it will proceed at a time when inflation is such a hot political issue it could force a more hawkish stance.

Data, however, will not begin to show an expected slower pace of rising consumer prices for at least a few months, making Fed Chair Jerome Powell's job more difficult as he tries to calm markets.

Mr Andrew Slimmon, a managing director at Morgan Stanley Investment Management, said: "We know the Fed is beginning to pivot and the problem is that the inflation numbers are not going to start to trend lower until later this spring."

In Europe, the German, French and Italian indices fell almost 2 per cent, with the broad Euro Stoxx index of 600 leading regional companies closing down 1.84 per cent.

MSCI's all-country world index fell 1.74 per cent. On Wall Street, the Dow Jones Industrial Average slid 1.30 per cent, the S&P 500 fell 1.89 per cent and the Nasdaq Composite lost 2.72 per cent.

Both the S&P 500 and the Nasdaq posted their biggest weekly declines since the market crashed in March 2020.

With the Fed posed to hike interest rates as many as four times this year, fear of a hard landing has risen among investors.

But a slowing economy in the months ahead will probably give the Fed second thoughts, said Mr Steven Ricchiuto, US chief economist at Mizuho Securities.

"By the time we get to the second rate hike, everything will be rolling over enough that everybody will back off from these calls," he said. "The growth numbers will be slowing much more quickly than the Fed anticipated."

REUTERS