Stan Cho and ALEX WEIG

NEW YORK (AP) – Shares are falling on Friday as a sharp, recent surge in interest rates continues to weigh on Wall Street. Some disappointing reports of profits from companies also shook what was the mainstay of the market.

The S&P 500 index was 2.4% lower in the afternoon and at the pace to close the third unprofitable week in a row. The Dow Jones industrial average fell 811 points, or 2.3%, to 33,985 as of 15:13 Eastern Time, while the Nasdaq was down 2.2%.

The day before, Wall Street seemed set on a healthy profit for a week after American Airlines, Tesla and other major companies reported stronger profits or better forecasts of future profits than analysts had expected. Such corporate optimism has helped stocks remain relatively resilient, despite worries about the highest inflation in decades, the war in Ukraine and the coronavirus.

But markets bowed when the chairman of the Federal Reserve revealed that the central bank could indeed raise short-term interest rates twice as much as usual at upcoming meetings starting in two weeks.

The Fed has once raised its key overnight rate, the first such increase since 2018 as it aggressively removes huge aid to the economy as a result of the pandemic. It is also preparing other steps to put pressure on raising long-term rates.

By making loans more expensive for businesses and households, higher rates are designed to slow the economy, which should hopefully stop the worst inflation in recent generations. But they can also cause a recession while putting downward pressure on most types of investments.

“After many years, when the Fed was very kind, it made it clear that in the foreseeable future the policy will be tougher,” said Brian Price, head of investment management at the Commonwealth Financial Network. “Their hawkish position is giving investors a pause as many are left to assess the impact on earnings and ratios (stocks) ahead.”

A preliminary report on Friday shows that the growth of the U.S. service industry is slowing, in part, from rising fuel, wage and other costs.

Treasury bond yields have risen as investors prepare for a more aggressive Fed, and stocks have often moved in the opposite direction. The 10-year Treasury’s yield is 2.90%, compared to 2.91% at the end of Thursday, but still close to its highest level since 2018. The year started with 1.51%.

The biennial treasury yields, which are more dependent on the Fed’s expectations regarding short-term rates, have increased even more. It is 2.72% after more than tripled from 0.73% at the beginning of the year.

Markets around the world are experiencing similar pressures on rates and inflation, especially in Europe as the war in Ukraine raises oil, gas and food prices.

The German DAX lost 2.5% on Friday and the French CAC 40 fell 2%. The FTSE 100 in London fell 1.4%.

In addition to the events in Ukraine, the second round of presidential elections in France this weekend may also tilt the markets.

In Asia, Japan’s Nikkei 225 fell 1.6% and South Korea’s Kospi lost 0.9%. Shares in Shanghai rose 0.2% after authorities promised to ease anti-virus controls on truck drivers who disrupt food and trade supplies.

On Wall Street, most stocks fell, with healthcare companies being the biggest weights.

HCA Healthcare fell 22% after reporting lower earnings per share in the last quarter than analysts had expected. The hospital operator has also cut projected revenue and revenue ranges this year.

Verizon Communications fell 5.3% after saying it expects earnings for the year to fall to the lower range it had forecast earlier. The company also reported slightly lower-than-expected earnings for the first three months of the year.

Retailer Gap fell 19.6% after cutting its sales forecast for the current fiscal quarter and said its Navy CEO would leave the company.

The company’s disappointing earnings and prospects, as well as Powell’s remarks on Thursday, have raised concerns among investors who are already trying to overcome economic uncertainty over protracted global supply chain problems, pandemics and the war in Ukraine, said Greg Basuk, CEO of AXS Investments.

“Looking ahead, it is causing a sour taste in the mouths of investors due to the likelihood of increased corporate profits in 2022,” he said.

However, the general trend on Wall Street has recently been more optimistic. Most companies have exceeded analysts ’expectations this season of earnings reports, which is about a fifth of the way.

Kimberly-Clark, a manufacturer whose brands include Huggies and Kleenex diapers, rose 8.5% for one of the biggest gains in the S&P 500 after it reported higher profits and revenue for the last quarter than analysts had expected.

The SVB financial group jumped 8.8% after also reporting higher earnings per share than expected. The parent company Silicon Valley Bank has raised its revenue forecast this year, in part due to rising interest rates and strong demand for loans from technology and other customers.


AP Business writer Yuri Kageyama contributed. Veiga reports from Los Angeles.

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