Stock race, erase losses after a volatile week

On Friday, the Labor Department said the Personal Consumption Spending index, the Fed’s preferred measure of inflation, rose 5.8 percent in the year to December, the fastest increase since 1982.

The worry on Wall Street is that interest rates will rise too quickly, hurting corporate profits, hammering consumer demand and discouraging investment in equities.

“With inflation sky-high and the Fed likely to raise rates four times a year, if not more, markets are concerned that the US economy will struggle to absorb such an aggressive approach from US central bank,” said Fiona Cincotta, a market analyst at Forex.com.

This worry is most evident in shares of technology companies, and even after Friday’s rally, the Nasdaq composite fell 12% in January – on track for its biggest drop since October. 2008.

While the broader S&P 500 has outperformed, in large part because rising oil prices have lifted shares of energy companies, it is still near a key threshold: down 10% from a record the last record, which Wall Street calls a correction. That drop in size is seen as a sign of investors’ rapidly changing attitudes about the economic outlook.

“A correction shows that the economy has really lost momentum,” Mr. Moya said. After Friday’s rally, the S&P 500 is down 7.6% from its January 3 high. However, the Nasdaq composite has been in a correction and is down 14% from its record high hit in November.

So some analysts cautioned against reading too much into Friday’s gains.

“The market is up today, driven by corporate earnings and perhaps some bargain hunting,” said Greg McBride, director of financial analysis at Bankrate.com. “But a row is not a sequence, and it could be different on Monday.”

Eshe Nelson contribution report.