S&P on track for worst week in three months as stocks face ‘reality check’

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The S&P 500 is headed for its worst week since early September after a combination of a hawkish Federal Reserve and fears of a looming Washington shutdown helped trigger a “reality check” for high-flying Wall Street stocks.

The index fell 0.5 percent in early trading on Friday, bringing its losses for the week to 3.5 percent. The declines, which also extended to global stocks, represent a setback for a market that has posted big gains this year, driven by federal interest rate cuts and a rise in big technology stocks.

“The euphoria in some parts of the US stock market is starting to glow red,” said Emmanuel Cao, a strategist at Barclays Bank.

He described this week’s selling as a “reality check” after frenzied buying of stocks and speculative assets such as Bitcoin, which surged after Donald Trump’s election victory in anticipation of tax cuts and loosening of regulation.

The S&P is still up more than 20 percent this year, but the sell-off has taken some of the shine off a rally that until this month was set to be Wall Street’s best year in five.

The danger of the American government close Analysts said Washington’s failure to agree on a spending package further worried investors.

The US Congress must approve a deal by Friday evening to keep the government open after the House of Representatives voted against the Trump-backed package that would have also suspended borrowing limits for two years.

A sell-off in U.S. Treasuries sent benchmark bond yields to a six-month high this week after the Federal Reserve signaled plans to cut interest rates just twice next year, less than investors expected.

In the post-election boom, “the stock market forgot that President Trump tends to be bullish,” said Michael O’Rourke, chief markets strategist at brokerage Jones Day.

The VIX volatility index, called Wall Street’s “fear gauge,” this week hit its highest levels since a brief bout of market turmoil in early August.

However, Treasury yields fell on Friday after the Fed’s preferred measure of inflation showed marginally less pressure on prices than expected.

The pessimistic mood also affected Europe, with the region-wide Stoxx Europe 600 index falling 1.7 percent in afternoon trading.

Trump added to the cautious mood in Europe with a message on his “Social Truth” platform. EU warning It must commit to purchasing American oil and gas on a large scale or face tariffs.

“The market was not ready to believe or price Trump’s seriousness about implementing tariffs,” said Jerry Fowler, head of European equity strategy at UBS. “Now that his comments have been directed more specifically at Europe, investors have taken note.”

London’s FTSE 100 index fell 1.1 per cent on Friday and is headed for a 3.4 per cent weekly decline – the worst since August 2023. UK markets have been rocked in recent weeks by a combination of slowing growth and stubbornly high inflation, which has prompted the Bank of England to… Interest rates will be left unchanged on Thursday.