Stocks close lower Friday after hot inflation report; major averages log worst week in 2023

U.S. stocks ended lower on Friday, wrapping up their worst week of 2023.

The Dow Jones Industrial Average fell by 336 points, or 1.0%. The S&P 500 and Nasdaq Composite slid 1.0% and 1.7%, respectively. The Dow fell as much as 510 points, or 1.54%, earlier in the trading session.

— Hakyung Kim

When stocks ran up to start 2023, ETF flows to growth-oriented funds remained tepid, suggesting many investors did not trust the rally.

That skepticism has proven to be smart over the past two weeks, with stocks giving back much of those early gains. And ETF flows are still defensive, with short-term Treasury funds raking in cash this week.

"What you've seen throughout 2022 and into 2023 is anything income-y has held up," said Jon Maier, chief investment officer at Global X ETFs.

Two of Global X's most popular funds are covered call ETFs on the Nasdaq 100 (QYLD) and S&P 500 (XYLD), which have more than $9 billion in assets combined and both saw inflows this week. The funds can miss out on upside when markets rally, but provide investors with additional income from selling calls when markets go sideways or down.

The firm also launched similar covered call funds earlier this week that contain an ESG component.

—Jesse Pound

The market is currently experiencing the effects of "too much good news at once," according to Baird analyst Ross Mayfield. With inflation remaining hot and the Federal Reserve expected to continue rate hikes, Mayfield advises investors to "control what [they] can control."

"First, automate things: dollar cost averaging (investing across regularly scheduled intervals) is a great avenue to find outperformance in volatile/sideways markets," wrote Mayfield in a Friday note.

"Second, revisit your allocation to ensure you're well diversified and on-plan."

— Hakyung Kim

Stocks in February have pulled back from a scorching January, so bullish sentiment among individual investors that prices will rise over the next six months plunged to 21.6% in the latest week, down from 34.1% last week.

Bullishness is below an historical average of 37.5% for the 64th week out of the past 66, the survey by the American Association of Individual Investors said.

Meanwhile, bearish sentiment jumped to 38.6% from 28.8% last week, meaning pessimism remains above its historical average of 31.0% for the 61st week out of the past 66, AAII said. The numbers also mean bears have outnumbered bulls in in 62 of the past 66 weeks.

Neutral views, that stocks will do little, rose to 39.8% from 37.1% — above the historical average of 31.5% for an eighth straight week.

But, fear not. Sentiment surveys are contrarian indicators, meaning rising bearishness equates to less risk in the market while advancing bullishness indicates more risk.

Or, fear more. Financial newsletter writers remained far more sanguine in this week's survey of their views. Bulls in the latest Investors Intelligence survey fell to just 44.1% from 45.1% after starting February at their highest reading (48.6%) since the end of 2021. Bears in the II poll dropped to 26.4% this week from 26.8% a week ago. Those expecting a correction edged higher, to 29.2% from 28.1%.

— Scott Schnipper

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We also screened stocks with a market cap bigger than $500 million and rated 4 or 5 stars by Morningstar.

Two of those stocks are Meta and Salesforce. Check out our full story for more.

— Yun Li

The S&P 500 is down about 3% this week, as traders feared that persistent inflation would l lead the Federal Reserve to keep rates higher for longer. On Friday, the broader market index fell more than 1% after the Fed's preferred inflation indicator showed a greater-than-expected increase in prices last month.

Some stocks bucked the negative trend this week, however, and are headed for solid gains, including Nvidia.

Shares of Nvidia got a boost from stronger-than-expected revenue guidance for the first quarter. Goldman Sachs also upgraded the chipmaker on the back of its fourth-quarter results.

— Fred Imbert

Here are some of the names making the biggest midday moves:

• Beyond Meat — Shares of the maker of plant-based meat alternatives surged nearly 10% after the company posted a smaller-than-expected loss for the recent quarter despite dwindling sales and soft demand.
• Live Nation — The ticker seller fell nearly 9%, despite reporting fourth-quarter revenue of $4.29 billion, up about 60% year over year and topping StreetAccount's estimate of $3.6 billion. Adjusted operating income was $97.8 million, below the $106 million expected. Live Nation is facing continued scrutiny after its Taylor Swift ticketing debacle.
• Boeing — Shares dropped 4.7% after the industrial giant said it has temporarily halted deliveries of its 787 Dreamliners so it can do additional analysis on a fuselage component.

— Michelle Fox

Boston Federal Reserve President Susan Collins said Friday that the central bank should be prepared to take a higher-for-longer stance to control inflation.

"Inflation remains too high, and recent data – including several strong labor market indicators, as well as faster than expected retail sales and producer price inflation – all reinforce my view that we have more work to do, to bring inflation down to the 2% target," Collins said in remarks prepared for a remove appearance before the Chicago University Booth School's U.S. Monetary Policy Forum in New York.

"I anticipate further rate increases to reach a sufficiently restrictive level, and then holding there for some, perhaps extended, time," she added.

The comments come following a series of higher-than-expected inflation reports indicating the Fed may have to continue hiking rates.

—Jeff Cox

Edward Moya, senior market analyst at Oanda, believes the future rate hikes from the Federal Reserve are inevitable after today's hot inflation numbers.

"US stocks are selling off after the Fed's preferred inflation reading comes in scorching hot, prompting bets that they will hike rates over the next three meetings. Some traders are also worried that they may need to take rates well above 6.00%," Moya said.

He added, "​This morning is not just about PCE inflation, but also the consumer. ​The consumer is still looking strong as personal income/spending posted healthy gains and as sentiment hit highest level in over a year, which is also bolstering case for a half-point rate increase at the March FOMC meeting. The Fed's rate hiking campaign looks like it might go into the summer, especially if the labor market refuses to break."

— Hakyung Kim, Fred Imbert

Chairman and CEO of Berkshire Hathaway Warren Buffett is slated to release his annual shareholder letter Saturday morning, along with the conglomerate's latest quarterly earnings.

The letter from the "Oracle of Omaha" has been required reading for investors for decades, and this year's message is particularly anticipated as interest rates have surged to levels unseen since 2007.

Here's what to expect from the investing legend.

— Yun Li

After another hotter-than-expected inflation reading, Jeffrey Roach, Chief Economist for LPL Financial, believes the markets will continue to waver for the next few months.

"In January, real personal spending rose 1.1% as consumers were seemingly unfazed by the inflationary environment," said Roach.

He added, "Clearly, tighter monetary policy has yet to fully impact consumers and shows that the Fed has more work to do in slowing down aggregate demand. The Fed may still decide to hike by 0.25% at the next meeting but this report means that the Fed will likely continue hiking into the summer. Markets will likely stay choppy during these months where higher rates have yet to materially cool consumer spending."

— Hakyung Kim

Goldman Sachs downgraded shares of Yeti Holdings to neutral from a buy rating, citing a slowing growth outlook for the cooler company.

"While we continue to see several of these drivers as long-term opportunities, we now have less conviction in the outlook for revenue outperformance as growth in core product categories (drinkware) and channels (wholesale) have faded on both a 1-yr and 3-yr CAGR basis," wrote analyst Brooke Roach in a Friday note to clients.

Shares were last down about 3%.

Read more on the call from the Wall Street firm here.

— Samantha Subin

Decliners at the New York Stock Exchange outpaced advancers by 6-1. Roughly 2,400 NYSE-listed stocks traded lower, while only 400 climbed.

— Fred Imbert

The 11 S&P 500 sectors fell Friday after the latest core PCE index reading stoked fears that rates would remain higher for longer.

Consumer sentiment, tech and communication services dropped at least 2%. Utilities, considered a safer part of the stock market, was the relative outperformer with a 0.7% gain.

— Fred Imbert

The University of Michigan's consumer sentiment index came in at 67 for February, slightly outpacing a Dow Jones forecast of 66.4.

"After lifting for the third consecutive month, sentiment is now 17 index points above the all-time low from June 2022 but remains almost 20 points below its historical average," Surveys of Consumers director Joanne Hsu said.

"Consumers with larger stock holdings exhibited particularly large increases in sentiment. Overall, February's reading was supported by a 12% improvement in the short-run economic outlook, while all other index components were essentially unchanged," Hsu added.

— Fred Imbert

It's time for investors to bet on shares of MGM Resorts International, according to Barclays.

Analyst Brandt Montour initiated coverage of the casino operator with an overweight rating, saying that shares should benefit from a recovery in Macao and continued strength in the Las Vegas market.

"We see MGM as a global leader in premium gaming, with an unmatched combination of market breadth and premium brand positioning across both land and digital, with shareholder-friendly management, and a very attractive [free cash flow] yield valuation implied for its core business," he wrote in a Friday note to clients.

CNBC Pro subscribers can read more about his upgrade here.

— Hakyung Kim

U.S. stocks opened lower Friday.

The Dow Jones Industrial Average fell by 386 points, or 1.1%. The S&P 500 and Nasdaq Composite slid 1.4% and 1.8%, respectively.

— Hakyung Kim

Personal consumption expenditures excluding food and energy increased increased 0.6% in January, and was up 4.7% from a year ago, the Commerce Department reported Friday. Wall Street had been expecting respective readings of 0.5% and 4.4%.

Including the volatile food and energy components, headline inflation increased 0.6% and 5.4% respectively.

— Hakyung Kim

Stock futures were down sharply Friday after the Federal Reserve's preferred inflation metric came in hotter than expected.

Dow futures traded more than 300 points lower, or 1%. S&P 500 futures slid 1.2%, and Nasdaq 100 futures were down 1.6%.

The personal consumption expenditures price index excluding food and energy increased 0.6% for the month, and was up 4.7% from a year ago, the Commerce Department reported Friday. Wall Street had been expecting respective readings of 0.5% and 4.4%.

— Jeff Cox, Fred Imbert

Interest rates need to go even higher for inflation to come down, Cleveland Federal Reserve President Loretta Mester said Friday.

"I see that we're going to have to bring interest rates above 5%," she told CNBC's Steve Liesman during a "Squawk Box" interview. "We'll figure out how much above. That's going to depend on how the economy evolves over time. But I do think we have to be somewhat above 5% and hold there for a time in order to get inflation on a sustainable downward path to 2%."

Mester made news recently when she revealed that she was among a small group of Fed officials who, at the Jan. 31-Feb. 1 Federal Open Market Committee, wanted a half percentage point rate hike rather than the quarter-point move the panel approved.

— Jeff Cox

Personal consumption expenditures excluding food and energy increased increased 0.6% in January, and was up 4.7% from a year ago, the Commerce Department reported Friday. Wall Street had been expecting respective readings of 0.5% and 4.4%.

Including the volatile food and energy components, headline inflation increased 0.6% and 5.4% respectively.

— Hakyung Kim

Check out the companies making headlines before the bell:

• Sweetgreen — Shares of the salad chain shed about 10% after Sweetgreen issued weaker-than-expected revenue guidance for the first quarter and full year, according to Refinitiv. Fourth-quarter revenue also fell short. Higher menu prices and fewer transactions hurt the firm, as did romaine, arugula and tomato shortages.
• Adobe — Shares fell more than 3% after a Bloomberg report, citing an unnamed source, said the U.S. Justice Department is planning to block the company's $20 billion acquisition of startup Figma in a lawsuit.
• Block — Shares of the payments giant rose more than 6% in early morning trading after the company reported better-than-expected revenue for the fourth quarter and strong growth in gross profit.

Read on for more movers here.

— Sarah Min

Apollo chief economist Torsten Slok said there's growing concern about the veracity of U.S. economic data.

"The Fed's dual mandate is full employment and inflation at 2%, but response rates to both labor market surveys and inflation surveys continue to decline. The bottom line is that the economic data is becoming more unreliable, causing more volatility in the incoming data and hence more volatility in markets," he said in a note.

— Fred Imbert, Yun Li

Bank of America said U.S. equities have seen outflows of $9 billion this week, as traders weigh the prospects of higher rates amid persistently high inflation.

This also marks the third straight week of outflows for U.S. stocks. Instead, investors have been piling into sovereign bonds and investment grade corporates. The former saw inflows of nearly $5 billion, while investors bought nearly $10 billion worth of investment grade corporate bonds.

— Fred Imbert

Boeing shares slipped nearly 3% in extended trading after the company temporarily halted delivery of its 787 Dreamliners over a fuselage issue.

The company won't be able to resume deliveries until it can show the FAA it has resolved the issue. However, production will continue and Boeing doesn't expect the issue to require additional work on the 787s.

— Gabrielle Fonrouge

Investors aren't the only ones keeping an eye out for the personal consumption expenditures price index. Central bank officials are also watching the report, as it's their favorite inflation metric.

The PCE, issued by the Bureau of Economic Analysis shows changes in the prices of goods and services purchased by consumers.

January's reading, which is due at 8:30 a.m. ET, is expected to show a 4.4 % gain for core PCE on an annual basis and a 0.5% increase from the prior month, according to economists surveyed by Dow Jones.

One of the reasons why the Federal Reserve prefers the PCE is because the index includes more comprehensive coverage of goods and services, compared to the popular consumer price index.

-Darla Mercado

These three companies are making headlines in extended trading.

• Carvana — Shares rose 1.7%. CEO Ernie Garcia, in a statement, said that over the next six months, the company will work to complete an estimated $1 billion in annual cost reduction. The online used car retailer reported a loss of $7.61 per share, greater than the forecasted loss of $2.28 per share, according to consensus estimates from Refinitiv. Carvana generated revenue of $2.84 billion, lower than the anticipated $3.1 billion.
• Block — The mobile payment stock climbed 6.5% after Block reported better-than-expected revenue in its fourth-quarter results. The company posted revenue of $4.65 billion, beating Refinitiv consensus estimates for $4.61 billion. However, Block missed estimates, posting adjusted earnings of 22 cents per share compared to expectations for 30 cents per share.
• Warner Bros. Discovery — Shares fell nearly 1% in extended trading after Warner Bros. Discovery posted disappointing results in its latest quarter. The media and entertainment conglomerate reported a loss of 86 cents per share on revenue of $11.01 billion. Analysts polled by Refinitiv called for a loss of 21 cents per share on revenue of $11.36 billion.

Read on for more after hours movers.

— Sarah Min

U.S. stock futures were little changed on Thursday night after the S&P 500 snapped a four-day losing streak.

Dow Jones Industrial Average futures fell by 43 points, or 0.13%. S&P 500 and Nasdaq 100 futures dipped 0.12% and 0.19%, respectively.

— Sarah Min