The S&P 500 ended higher on Friday as financial shares rose after the benchmark Treasury yield jumped to its highest level in nearly three years.
The Nasdaq ended lower, and tech and other big growth names mostly declined, but they finished off session lows following a late-session rally.
For the week, the Nasdaq and S&P 500 registered solid gains of 2% and 1.8%, respectively, and the Dow was nominally higher with a 0.3% rise.
The S&P 500 financials sector gave the S&P 500 its biggest boost on Friday, rising 1.3%, while technology and consumer discretionary sectors were the only two major sectors to end lower on the day.
Investors are assessing how aggressive the Federal Reserve will be as it tightens policy after Fed Chair Jerome Powell this week said that the central bank needed to move “expeditiously” to combat high inflation and raised the possibility of a 50-basis-point hike in rates in May.
US Treasury yields jumped on Friday, with the benchmark 10-year note surging to nearly three-year highs, as the market grappled with high inflation and a Federal Reserve that could easily spark a downturn as it aggressively tightens policy.
Ten-year Treasury yields were last at 2.492% after earlier rising above 2.50% for the first time since May 2019.
The equity market is pricing in a higher rate environment, said Keith Buchanan, portfolio manager at Globalt Investments in Atlanta.
That is causing bank stocks to outperform, while “adding more pressure to the riskier elements of the market,” such as growth shares, he said.
Higher borrowing rates benefit banks, while higher rates are a negative for tech and growth stocks, whose valuations rely more heavily on future cash flows.
The Dow Jones Industrial Average rose 153.3 points, or 0.44%, to 34,861.24, the S&P 500 gained 22.9 points, or 0.51%, to 4,543.06 and the Nasdaq Composite dropped 22.54 points, or 0.16%, to 14,169.30.
Shares of growth companies like Nvidia Corp eased after leading a Wall Street rebound earlier this week.
The utilities sector also rose sharply, hitting a record high as investors favored defensive stocks with the Russia-Ukraine war still raging after a month.
The sector ended up 1.5% on the day and up 3.5% for the week, while the energy sector ended up 2.3% on the day and jumped more than 7% for the week following sharp gains in oil prices.
Moscow signaled on Friday it was scaling back its ambitions in Ukraine to focus on territory claimed by Russian-backed separatists.
Economists at Citibank are expecting four 50 basis points interest rate hikes from the Fed this year, joining other Wall Street banks in forecasting an aggressive tightening path against the backdrop of soaring inflation.
The US central bank last week raised interest rates for the first time since 2018.
“The market’s really macro driven,” said Steve DeSanctis, small- and mid-capitalization equity strategist at Jefferies in New York. “Company fundamentals have not really mattered.”
Volume on US exchanges was 11.92 billion shares, compared to the 14.28 billion average for the full session over the last 20 trading days.
Advancing issues outnumbered declining ones on the NYSE by a 1.08-to-1 ratio; on Nasdaq, a 1.40-to-1 ratio favored decliners.
The S&P 500 posted 57 new 52-week highs and five new lows; the Nasdaq Composite recorded 73 new highs and 79 new lows.
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