U.S. equity indexes were mixed Friday as dip buyers brushed off hawkish comments by Federal Reserve officials to help keep weekly losses at a minimum. 

The S&P 500 Index dropped 0.3 per cent after falling as much as 1 per cent, lifted by consumer staples and utility stocks. The benchmark closed down 0.3 per cent on the week but the Nasdaq 100 managed to gain 0.4 per cent in the five-day period.

Traders fully priced in quarter-point interest rate increases at the Fed’s next two meetings after policymakers said Thursday that bigger hikes were not out of the question. 

Federal Reserve Bank of Richmond President Thomas Barkin said Friday that he favored a quarter-point interest rate hike in February to give the central bank “flexibility” in its quest to tamp down inflation. Fed Governor Michelle Bowman said rates need to keep going higher since inflation remains “much too high.”

“Markets seem to be in a new tug of war, with the Treasury curve reflecting higher-for-longer, and equities signaling the potential for a soft landing,” said Art Hogan, chief market strategist at B. Riley. “That dichotomy seems to manifest in equity markets opening lower every day, like today, and then clawing back losses.”

Investors have been upping bets on how far the Fed will raise rates this tightening cycle. They now see the federal funds rate climbing to nearly 5.3 per cent in July, according to trading in the U.S. money markets. That compares with a perceived peak rate of 4.9 per cent at the start of the month.

“If investors are really finally starting to believe the Fed about their claim that rates will stay ‘higher for longer,’” Matt Maley, chief market strategist at Miller Tabak + Co., wrote, “we could be looking at a significant decline in the weeks ahead.” 

Friday’s index trading volumes remained somewhat below their 30-day averages during February’s options expiry, though the day’s sharp moves could have reflected the growth of fast-twitch options. 

“Markets are acting weird,” said Cliff Hodge, chief investment officer for Cornerstone Wealth. “The narrative for bulls has changed from soft-landing to strong economy. What this ignores is that strong economy means a more aggressive Fed, which means higher rates and stronger dollar. Neither of these support current valuations. Bulls could be on borrowed time.” 

Bank of America Corp. strategists wrote that the delayed arrival of a recession will weigh on U.S. stocks in the second half of the year, noting that a resilient economy thus far means interest rates will stay higher for longer.

A BofA team led by Michael Hartnett is among those predicting a scenario known as “no landing” in the first half, where economic growth will stay robust and central banks will likely remain hawkish for longer. That will probably be followed by a “hard landing” in the latter part of 2023, they wrote.

Bitcoin posted a fourth straight day of gains Friday, even after the U.S. Securities & Exchange Commission accused Do Kwon and Terraform Labs Pte of fraud over the wipeout of digital currencies he created.

In commodities, oil capped its longest string of daily losses on the year as rising U.S. inventories and the prospect of further tightening by the Federal Reserve eclipsed the lift from signs that Chinese energy demand is improving. 

Some of the main moves in markets:

Stocks

• The S&P 500 fell 0.3 per cent to the lowest since Jan. 31 as of 4 p.m. New York time
• The Nasdaq 100 fell 0.7 per cent to the lowest since Feb. 10
• The Dow Jones Industrial Average rose 0.4 per cent
• The MSCI World index fell 0.7 per cent, more than any closing loss since Feb. 6

Currencies

• The Bloomberg Dollar Spot Index fell 0.1 per cent
• The euro rose 0.2 per cent to US$1.0696
• The British pound rose 0.4 per cent to US$1.2043
• The Japanese yen fell 0.2 per cent to 134.20 per dollar

Cryptocurrencies

• Bitcoin strengthened 1.1 per cent,rising for the fourth straight day, the longest winning streak since Jan. 17
• Ether strengthened 1.6 per cent,rising for the fourth straight day, the longest winning streak since Feb. 4

Bonds

• The yield on 10-year Treasuries declined five basis points, more than any closing decline since Feb. 8
• Germany’s 10-year yield declined four basis points to 2.44 per cent
• Britain’s 10-year yield advanced two basis points to 3.51 per cent

Commodities

• West Texas Intermediate crude fell 2.8 per cent, falling for the fourth straight day, the longest losing streak since Dec. 9
• Gold futures were little changed