US stocks closed lower on Friday (Jun 23), capping a week dominated by Federal Reserve chairman Jerome Powell’s testimony, in which he signalled more interest rate hikes ahead but vowed the central bank would proceed with caution.

All three major US stock indexes lost ground in a broad sell-off. Interest-sensitive mega-cap stocks weighed heaviest on the tech-laden Nasdaq composite index, led by Microsoft, Tesla and Nvidia.

With few market-moving catalysts this week aside from Powell’s congressional testimony, all three indexes notched weekly losses, ending a weeks-long rally.

The Nasdaq snapped its eight-week winning streak, its longest since March 2019, while the S&P 500 broke its five-week rally, its longest since November 2021.

The S&P 500 and the Nasdaq logged their biggest Friday-to-Friday percentage drops since early March, when the regional banking liquidity crisis hit.

“It has been an overbought market, and giving a little bit back,” said Ross Mayfield, investment strategy analyst at Baird in Louisville, Kentucky. “(The rally) has been momentum-driven, with fairly broad participation, and there’s nothing surprising about markets taking a pause, and the pause has been fairly orderly.”

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San Francisco Fed Bank president Mary Daly said on Friday in an interview with Reuters that two more rate hikes this year is a “very reasonable” projection, while echoing Powell’s call for more caution in policy decisions.

Atlanta Fed president Tom Barkin said late Thursday he was unconvinced inflation is on a steady path down to the 2 per cent target, but added he would not predict the outcome of the central bank’s July policy meeting.

Financial markets have baked in a 74.4 per cent likelihood that the Fed will resume hiking the Fed funds target rate by another 25 basis points at the July meeting, according to CME’s FedWatch tool.

“You can probably count on a rate hike next month, but it’s that second hike that the markets are skeptical of,” Mayfield added. “I’ll be surprised if the inflation data and other economic data merit that second hike by the time we get to the September (Fed) meeting.”

The Dow Jones Industrial Average fell 219.28 points or 0.65 per cent to 33,727.43, the S&P 500 lost 33.56 points or 0.77 per cent at 4,348.33 and the Nasdaq Composite dropped 138.09 points or 1.01 per cent to 13,492.52.

All 11 of the major S&P 500 sectors lost ground, with utilities suffering the largest percentage loss.

Chips weighed on tech shares, with the Philadelphia SE Semiconductor index sliding 1.8 per cent.

Used car marketplace Carmax posted better-than-expected quarterly profits, sending its shares surging 10.1 per cent.

Starbucks fell 2.5 per cent after its unions said around 3,500 U.S. workers will strike next week to protest the chain’s ban on Pride month decorations at its cafes.

The CBOE Market Volatility index, a gauge of investor anxiety settled at up 0.53 point at 13.44, bouncing off a three-and-a-half year low.

Declining issues outnumbered advancers on the NYSE by a 2.39-to-1 ratio; on Nasdaq, a 2.03-to-1 ratio favoured decliners.

The S&P 500 posted 18 new 52-week highs and four new lows; the Nasdaq Composite recorded 35 new highs and 138 new lows.

The Russell 2000 finalised the reconstitution of its stock components, which fuelled a surge in trading volume.

Volume on US exchanges was 15.93 billion shares, compared with the 11.68 billion average for the full session over the last 20 trading days. REUTERS