Stocks closed lower Friday as market participants grew increasingly concerned that hawkishness on the part of the Federal Reserve and other central banks could cause a global recession later this year.
Companies whose shares have rallied sharply on the promise of generative artificial intelligence (AI) came under particular pressure during the session, driving the Nasdaq-100 to record its worst weekly performance since early March.
Meanwhile, the flight to safety lifted the price of gold.
The market's remarkable rally of 2023 has been led primarily by mega-cap stocks in the tech and communications services sectors, as these names are expected to be among the biggest beneficiaries of the boom in generative AI. But tighter monetary policy on the part of global central banks took some of the momentum out of that trade during this holiday-shortened week, and the selling persisted on Friday.
Fed Chair Jerome Powell earlier this week told Congress that the central bank's rate-setting committee, the Federal Open Market Committee (FOMC), would likely need to raise the short-term federal funds rate by a quarter of a percentage point two more times before the end of the year. In other hawkish moves, the Bank of England, Swiss National Bank and central bank of Norway all raised their benchmark interest rates this week.
Tighter policy is spooking investors who were counting on the end of the rate-tightening cycle – to say nothing of those who looked forward to the day when the Fed would actually begin to cut rates.
"The global growth outlook is deteriorating quickly as major central banks are delivering more rate hikes and signaling that more tightening is coming," said Edward Moya, senior market analyst with OANDA, in a note to clients. "Aggressive tightening from here on out will torpedo the economy."
Recession fears were most keenly felt in several of the market's highest fliers. Microsoft (MSFT), Nvidia (NVDA), Google parent Alphabet (GOOGL) and Broadcom (AVGO) were just some of the big tech stocks whose declines weighed on the broader market Friday.
At the closing bell, the tech-heavy Nasdaq Composite was off 1.0% to finish at 13,492, while the broader S&P 500 slid 0.8% to end at 4,348. The blue-chip Dow Jones Industrial Average fell 0.7% to hit 33,727. The Nasdaq-100, an index of the largest non-financial stocks listed on the Nasdaq, suffered its worst week since March 10, 2023.
Meanwhile, in a flight to safety, gold futures for August delivery gained $5.90, or 0.3%, to settle at $1,929.60 per ounce on Comex.
Investing in gold is dumb
Gold prices rose as stocks fell Friday, which makes sense.
Rising recession fears and persistently high inflation should make a great case for investing in gold. After all, the yellow metal has long been thought to be a "safety" play that holds up well when riskier assets are selling off. The so-called barbarous relic is also supposed to be a hedge against inflation.
Sadly for gold bugs, none of this is really borne out by the historical record. Just look at the data and you'll see that investing in gold is dumb. Even after adjusting for inflation, this nonproductive asset has underperformed stocks over every standardized period of time over the past 30 years.
When it comes to wealth generation and inflation protection, stocks beat gold hands down.
