© Reuters. FILE PHOTO: A street sign is seen in front of the New York Stock Exchange on Wall Street in New York, Feb. 10, 2009. REUTERS / Eric Thayer / File Photo
By David French and Medha Singh
(Reuters) – The three major Wall Street indices all closed significantly lower on Friday after investors were startled by restrictive interest rate comments from Federal Reserve official James Bullard.
The blue-chip Dow and benchmark, which started the week with record highs, plummeted after Bullard, president of the St. Louis Federal Reserve, said he was one of seven officials to see rate hikes to curb inflation starting next year .
Inflation, and how the US Federal Reserve will deal with it when the country comes out of the pandemic, was at the center of investors' minds ahead of this week's Fed policy meeting.
With the Fed forecasting rate hikes on Wednesday coming earlier than previously expected, signaling that it has reached the point where it could start talking – instead of just thinking about tapering its massive stimulus measures – Wall Street major indices are struggling had.
"I'm not surprised that the market is a little sold out. I'm never surprised, given the strong run we've had over such a long period of time, seeing some profit-taking periods," said Tim Ghriskey, chief investment strategist at Inverness Counsel in New York.
Bullard's comments rocketed the CBOE volatility index, Wall Street's fear measure, which initially hit its highest level since May 21st before falling back a little.
"Next week, different Fed governors will be making speeches, and we will have the same thing: some governors will be more restrictive and others more cautious, so you will be looking back and forth," Ghriskey added.
Unofficially, the S&P 500 fell 534.22 points or 1.58% to 33,289.23, the S&P 500 lost 56.07 points or 1.33% to 4,165.79 and that fell 131.66 points or 0.93% to 14,029.69.
Another impact on the market from Bullard's comments was a further strengthening of the US dollar. The index, which tracks the greenback against six major currencies, has climbed to its highest level since mid-April and is on track for its biggest weekly gain in about 14 months.
While prices – traditionally plagued by a strong dollar – initially fell on Friday, they rebounded after OPEC sources said the producer group expects limited growth in US oil production this year. (OR)
The uptrend in commodities did not improve sentiment for US energy stocks, with the financials sector index closing out as the worst performers.
Friday was also "Quadruple Witches' Day", the quarterly simultaneous expiration of US options and futures contracts, resulting in increased trading volume at the close of the market.
It was the largest option expiration in history, noted Randy Frederick, vice president of trading and derivatives for Charles Schwab (NYSE :).