Stocks close lower on Friday, extending sell off for worst week since June for S&P 500 and Nasdaq

The major averages closed lower again on Friday, their third negative day in four, to round out an ugly week for Wall Street. The Nasdaq was the worst performer for the day, down about 0.9%, and for the week, losing more than 5%.

— Jesse Pound

This week's mixed economic numbers, hot inflation reading and FedEx warning have brought the dreaded prospect of "stagflation" back into view. The term typically refers to the 1970s, when the U.S. economy suffered from low growth and persistently high inflation for much of the decade.

However, Goldman Sachs still sees a "soft landing" as a possibility, and Goldman's Chris Hussey wrote on Friday that the economy hasn't stagnated just yet, even after negative readings for GDP to start the year.

"In the same month that Fed Ex warned global shipments fell (August), the US added 315,000 net new non-farm payroll jobs and the unemployment rate rose only 20bp to a still ultra-low 3.7%. Importantly, wage inflation remains high but it did slow from July's pace. The US labor market is just not exhibiting many signs of 'stag,'" Hussey said.

— Jesse Pound, Michael Bloom

Goldman Sachs rate strategists expect the U.S. 10-year yield to peak at 4% by the end of 2023, and the 2-year at 4.3% by the second quarter.

The benchmark 10-year yield was lower at 3.44% Friday afternoon. The 2-year yield was at 3.85%, after rising above 3.9% earlier in the day.

Goldman Sachs strategists had previously expected a high this year of 3.3% in the 10-year but changed that forecast to 3.75% due to higher expectations for Federal Reserve rate hikes.

The strategists said in a note that they expect the front end of the curve to lead yields higher, and that the so-called "flattening" of the curve has also peaked. The yield curve inverted when the yield of the 2-year rose above the 10-year yield.

— Patti Domm

FedEx's warning about its business could be just one of many earnings estimate downgrades from companies and Wall Street analysts in the coming months.

As fears of a recession began to rise this summer, many portfolio managers and strategists have predicted that projected earnings growth for 2023 will prove to be too high.

While that projected earnings number has slowly slipped in recent months, it still shows more growth than a recession could likely support, suggesting that some harsh cuts could be in the pipeline.

"Earnings tend to adjust with a lag. The market sort of reacts ahead of those downward revisions. So some of the weakness, and certainly if it continues from here, is really starting to price in those coming downgrades," Jake Jolly, senior investment strategist at BNY Mellon Investment Management.

— Jesse Pound

The markets struggled across the board this week, but not all stocks were hit equally.

In the S&P 500, Adobe and FedEx fell around 25% and 23%, respectively. Nucor, Eastman Chemical and International Paper rounded out the top five worst week over week performers within the index, with each posting losses of around 16%.

All five far outpaced the index's weekly loss of 3.8%.

Boeing and Dow, Inc. each dropped nearly 9% week over week, making them the biggest losses in the Dow Jones Industrial Average. That's about double the index loss of 4.7%.

Home Depot, Honeywell and Microsoft followed, all falling around around 8% this week.

— Alex Harring

Declining stocks in the S&P 500 outnumber advancers by more than 4-to-1 on Friday, continuing a sharp reversal in market breadth and investor sentiment caused by Tuesday's CPI report.

"This year has been riddled with technical false starts. Few times in history have the A/Ds been so positive leading into a day with such overwhelming selling pressure," Frank Gretz, technical analyst at Wellington Shields, wrote in a note to clients. "There's always a risk in reading too much into one day, knee-jerk sort of reactions. Then too, the numbers say the report may have shifted investors' mindset. They now suddenly believe what the Fed has been screaming."

— Jesse Pound

Friday's sell-off is taking place on a "triple witching" day, which means there could be heightened market volatility as the end of the session draws nearer.

On triple witching days, options on stocks, stock indexes, and stock futures expire at the same time. these events take place four times a year and are associated with choppy trading action and high volumes.

— Fred Imbert

The Treasury market appeared to calm down in midday trading after a volatile week.

The 2-year Treasury yield, which jumped above 3.9% on Friday morning, is now little changed for the day near 3.87%. The 10-year Treasury yield is slightly lower. Yields move opposite of price.

The long-end of the curve is seeing the biggest moves today, with the 30-year Treasury yield rising more than 3 basis points to 3.517%.

— Jesse Pound

UBS believes Amazon shares remain attractive, particularly because of the ecommerce giant's retail growth.

"Between Census data and a possible 2nd Prime Day, we feel good about the retail business," analyst Lloyd Walmsely wrote in a note.

The firm reiterated its buy rating for Amazon, which is its top pick in the ecommerce space and in its overall internet coverage.

Shares of the commerce giant were down more than 3% in midday trading.

— Michelle Fox

The Dow Jones Transportation Average tumbled as much as 6% Friday morning, reaching a low last seen in February 2021. The index is on pace for its worst day since May 18 when it slumped 7.41%.

A sharp decline in shares of FedEx is dragging the Dow Transports index. The shipments company's share price tumbled more than 22%, dipping on disappointing news. On Thursday, FedEx withdrew its full-year guidance and announced it would close 90 offices, five corporate locations and defer hiring.

The Dow Transports' performance is particularly notable because the index is deemed a leading indicator for the economy's trajectory.

—Darla Mercado, Gina Francolla

Oil prices advanced on Friday but were still set for a third straight week of declines as macroeconomic concerns weigh. Traders fear that a global economic slowdown would cut demand for oil and other petroleum products.

West Texas Intermediate crude futures, the U.S. oil benchmark, added 0.7% to trade at $85.68 per barrel on Friday. For the week it's down roughly 1.3%. Global benchmark Brent crude stood at $91.65 on Friday, for a gain of 0.9%. Over the last five session it's down 1.3%.

"Energy prices are showing signs of stabilizing, despite the prevailing risk-off market tone," TD Securities said Friday in a note to clients.

"With the weakness from positioning, sentiment and liquidity premia priced in, the market narrative is slowly shifting back toward structural tightness as the winter season looms on the horizon," the firm added.

The S&P 500 energy sector is down 2.5% for the week.

— Pippa Stevens

The S&P 500 has continuously closed below its 200-day moving average since April 8, the longest such stretch since the Financial Crisis.

During the crisis, the S&P 500 first closed below its 200-day on Dec. 27, 2007, and did not close back above the technical support level until June 1, 2009.

— Gina Francolla, Samantha Subin

The University of Michigan's consumer sentiment index preliminary September reading came in at 59.5, just below a Dow Jones estimate of 60. That print was still slightly above August's final reading of 58.2.

"With continued declines in energy prices, the median expected year-ahead inflation rate declined to 4.6%, the lowest reading since last September," Surveys of Consumers director Joanne Hsu wrote. "However, it is unclear if these improvements will persist, as consumers continued to exhibit substantial uncertainty over the future trajectory of prices."

"Uncertainty over short-run inflation reached levels last seen in 1982, and uncertainty over long run inflation rose from 3.9 to 4.5 this month, well above the 3.4 level seen last September," Hsu added.

The data comes after a mixed week of economic reports that included an unexpected increase in the U.S. consumer price index.

— Fred Imbert

The major market averages opened sharply lower on Friday morning, with the Dow falling more than 300 points. The S&P 500 is off by more than 1%.

The Nasdaq Composite continues to underperform. The tech-heavy index fell by 1.7% on Friday morning and has now lost more than 6% for the week.

— Jesse Pound

Many Wall Street pros are skeptical of the stock market's valuation, in part because many professional investors are predicting that earnings growth will slow substantially or even turn negative next year.

But the spike in Treasury yields this year makes makes the market look like it may be overvalued already, even without adjust earnings estimates, according to Bank of America's Savita Subramanian.

"Stocks are cheaper, but still not cheap: the S&P 500 is trading at 18.4x trailing EPS and 16.7x forward (consensus) EPS – in line with average multiples in the 2010s. But if we factor in 8% inflation ... multiples are far too high, and TINA ('there is no alternative' to stocks) is hard to argue amid a 4% cash yield by early 2023 (house view)," Savita Subramanian wrote. "These factors warrant, in our view, a lower multiple than what we enjoyed in the 2010s."

— Jesse Pound

The front end of the yield curve continues to make new highs, with the 2-year Treasury yield topping 3.9% on Friday. It is the first time the 2-year has had a yield that high since Nov. 1, 2007.

The 1-year Treasury yield, meanwhile, has surged well above 4% and was trading at 4.026% on Friday morning.

The 10-year Treasury saw milder moves, deepening the inversion of the yield curve.

— Jesse Pound

Expect shares of Tesla to rally as much as 32% as the electric vehicle giant boosts production at struggling factories and benefits from the government's latest climate bill, Deutsche Bank says.

Analyst Emmanuel Rosner upped his price target on Tesla to $400 from $375 a share, citing the Inflation Reduction Act's battery production credits and elevated production at its Texas and Berlin facilities.

"We view 2023 as a pivotal year in which Tesla continues to grow volume at a high pace, enters new segments with Cybertruck and Semi, optimizes its manufacturing footprint, and benefits from IRA which will lower its costs and boost demand," Rosner wrote, while also beefing up the bank's gross margin forecast for 2023.

Further upside to Wall Street's estimates could come from Tesla's driver assistance system it hiked prices on earlier this month, Rosner said. Margins should also improve as volume steps up.

Tesla's stock is down roughly 14% this year.

— Samantha Subin

As investors debate whether high inflation can be resolved without a recession, Goldman Sachs analyzed how different the market could look if the pessimistic view materializes. There are uncertainties at every step, the firm's Dominic Wilson said in a note Friday.

However, "the basic story is simple. If only a significant recession—and a sharper Fed response to deliver it—will tame inflation, then the downside to both equities and government bonds could still be substantial, even after the damage that we have already seen."

— Tanaya Macheel

Morgan Stanley upgraded shares of Alcoa to an overweight rating, saying the company's free cash flow yield and a constructive outlook for aluminum prices will support shares of the metals giant.

"While we see underwhelming 2H22 results, mainly on the back of lower commodity prices and higher costs, we believe the market will see through these near term headwinds," the firm wrote in a note to clients. Morgan Stanley added that the stock trades at a discount relative to its historical average multiple.

Shares of Alcoa have dropped 18% over the last week as fears rise around a coming economic slowdown, which would cut demand for metals like aluminum.

The stock added 1% during premarket trading Friday.

— Pippa Stevens

FedEx's guidance cut appears to be weighing on related stocks on Friday morning.

Shares of shipping rival UPS fell more than 7% in premarket trading. XPO Logistics dropped 6%.

Transport stocks are often seen as a bellwether for the U.S. economy, so FedEx's warning could create selling pressure across the board on Wall Street as investors prepare for a potential recession.

— Jesse Pound

FedEx's earnings warning led to several analysts downgrading the stock, including JPMorgan's Brian Ossenbeck.

"Against a backdrop of weaker economic activity and slower e-commerce growth with inconsistent execution, we believe FDX will continue trading at a depressed multiple until earnings stabilize with some potential help from cost saving initiatives," Ossenbeck wrote as he downgraded the stock to neutral.

CNBC Pro subscribers can read more here.

— Sam Subin

The British pound has dropped below $1.14 for the first time since 1985.

Sterling fell as low as $1.135 at 8:50 a.m. London before rising slightly to $1.137.

The pound has plummeted against the greenback this year on a combination of dollar strength and U.K. recession warnings. Data published Friday morning showed U.K. retail sales fell more than expected in August.

— Jenni Reid

European markets fell sharply in early trading as recession warnings, expectations for further rate hikes and continued volatility in the energy market weighed on stocks.

The pan-European Stoxx 600 was down 1.2% in the first hour, and U.K., French and German indexes all fell.

All sectors were in the red as energy, industrial and auto stocks dropped more than 2% each.

Read more here.

— Jenni Reid

The yield on the U.S. 2-year Treasury note briefly reached 3.901%, before pulling back slightly to 3.8921% in Asia's morning trade.

That's the highest level since 2007. Yields move inversely to prices, and a basis point is equal to 0.01%.

The 10-year Treasury yield was last at 3.4567% after touching 3.459%, while the yield on the 30-year Treasury bond was lower at 3.4743%.

— Abigail Ng

Tech stocks suffered yet another sell-off this week as investors digested a hotter-than-expected August inflation report.

Amid a tough year for the sector, some investors are seeking refuge in the relative safety of mega-cap stocks. Top tech investor Paul Meeks weighs in on two such stocks and reveals which he prefers in the current environment.

Pro subscribers can read more here.

— Zavier Ong

China's latest economic data release showed growth accelerated in August.

Retail sales increased 5.4% in August from the same period last year, much higher than July's 2.7% and also above the Reuters forecast of 3.5%.

Industrial production grew 4.2% last month compared with a year ago, topping the prediction of 3.8% in a Reuters poll. Industrial output came in at 3.8% in July.

Fixed asset investment for January to August this year increased by 5.8%, beating the 5.5% estimate from Reuters.

— Abigail Ng, Evelyn Cheng

All three major averages are on track to post their fourth losing week in five. Here are where markets stand through Thursday:

• The Dow Jones Industrial Average is down 3.7%
• The S&P 500 is down 4.08%
• The Nasdaq Composite is down 4.62%, heading toward its worst week since June 17

— Sarah Min

Shares of FedEx tumbled 15.3% in after hours trading after the transport company withdrew its full-year guidance, and said it will implement cost-cutting initiatives to contend with a worsening macro.

"Global volumes declined as macroeconomic trends significantly worsened later in the quarter, both internationally and in the U.S. We are swiftly addressing these headwinds, but given the speed at which conditions shifted, first quarter results are below our expectations," FedEx CEO Raj Subramaniam said in a statement.

The company said it is closing 90 office locations, shutting down five corporate office facilities and pausing hiring efforts, as part of those cost-cutting measures.

— Sarah Min

U.S. stock futures opened lower on Thursday night as Wall Street headed toward its fourth losing week in five.

Dow Jones Industrial Average futures dropped by 137 points, or 0.44%. S&P 500 and Nasdaq 100 futures declined 0.51% and 0.60%, respectively.

— Sarah Min